In a world of ever-increasing digitalisation, payment methods are subject to unprecedented evolution, from traditional banking infrastructure to revolutionary cryptography, and ‘stablecoins’ that make cryptocurrencies a reality on the ground. Will Central Bank Digital Currencies be the tipping point at which telco customers will increasingly begin to pay cryptographically? Musaddik Ahmed investigates.
In a previous blog
, we spoke about Facebook’s foray into the metaverse, and how the tech giant’s focus on digital assets has jolted central banks into planning digital money.
already accept crypto payments, yet, the idea of someone paying their connectivity bills using cryptocurrency still sounds bizarre. The emergence of Central Bank Digital Currencies is set to change this.
But isn’t money already digital?
Money is changing. Cash is now too cumbersome for many people – why deal with clattering coins when we can pay by tapping our phones? When we see apps instantly updating our bank balance when we make payments, we might assume that money is digital already. However, the technology underlying those numbers is in fact quite antiquated.
Modern banking has its roots in the 15th
century, and the Medicis’ double-entry bookkeeping
, tracking monetary transfers through debits and credit in a ledger maintained by central banks, who issue banknotes, and their digital copies, to commercial banks who in turn distribute them by facilitating payments and issuing loans. Confidence in these notes is guaranteed by the central bank, who act as a lender of last resort.
While this system has served us well for over 500 years, the digital age promises to disrupt traditional banking. In 2009, Bitcoin took the Medici ledger and distributed it across a network of computers, each incentivised to maintain its validity.
This distributed ledger technology
, better known as blockchain, digitalises the ledger, taking the tracking of value from being double-entry to many
-entry, from a specific local ledger to a distributed global ledger. Using an innovative consensus algorithm,
blockchains guarantee the validity of entries via cryptography instead of a double-entry procedure. And it is this technology that is spurring a change in money.
The strongest objection to cryptocurrencies as a replacement for traditional money usually comes from the huge fluctuations in value – stablecoins
set out to address this.
Like Bitcoin, stablecoins use blockchain to maintain a digital record of transfers. However, whilst the value of cryptocurrencies is driven by the whims of the market, stablecoins peg their price to a reference value. For example, USDC, now accepted by Google Cloud
, pegs its price to that of the US dollar.
This steady value makes them useful for exchanging to ‘real’ currency at predictable rates. Parity is maintained by a basket of assets (other currencies, bonds, stocks etc.), equivalent to the value of the coin in question.
However, many still doubt their efficacy. Probably because they mistrust those issuing them. Stablecoins are issued by cryptocurrency exchanges, and though they may apply for banking licences
, they are still risky technology companies, as the recent saga of FTX
Other high-profile failures, like Luna’s “algorithmic stablecoin”
which broke its peg and lost $60 billion in value, don’t help, so sensible telco customers might continue to be circumspect when it comes to privately issued cryptocurrencies. But what if the institutions issuing crypto are the very institutions that we put our trust in for money today? In other words, what if crypto was issued by central banks?
Are CBDCs just another meme coin?
CBDCs are an evolved version of wild-west cryptocurrencies
. While they use similar cryptography to meme coins like Doge
, they are backed not by a humdrum group of libertarian technologists dreaming of a decentralised currency, but by the power of the state.
As the Economist explains
: “Instead of holding an account with a retail bank, you would do so direct with a central bank through an interface resembling apps such as Alipay or Venmo. Rather than writing cheques or paying online with a card, you could use the central bank’s cheap plumbing.”
And these CBDCs are already here.
The Bank of International Settlements – the bank for central banks – is working with the European Central Bank, the Federal Reserve and others to explore system design parameters for CBDCs
. But while Western powerhouses continue to study, emerging markets are charging ahead
; China has deployed a pilot e-yuan to 500,000 people, and the Bahamas has a fully functional e-currency
operating across their islands.
When they come, what will change?
When money becomes digital, payments can be settled directly with the central bank’s ledger, rather than with a commercial bank and then having the commercial bank’s transaction settle with the central bank. This is significant for two reasons: the benefits it brings to commerce with easy integration of payment APIs, and the risks it brings through greater surveillance measures.
Besides the macroeconomic benefits to individual nations, CBDCs also promise a better financial system. With CBDCs, money becomes programmable, rather than dealing with the settlement and compliance checks of a bank account; money can plug directly into APIs that will handle settlement instantly. Smaller economies, without the global clout of the sterling or the dollar, have the most to gain, providing them an avenue for monetary sovereignty that reduces reliance on western banks.
This promises a much more efficient payment system, with a reduction in financial operating expenses and increased financial access for 1.7 billion unbanked people
(when banking services are provided directly by the government, access will not be metered according to profit potential).
But there are also risks. Authoritarian regimes will be better able to exert social control
: China’s e-yuan was issued with an expiry date, and it is unlikely that the e-yuan can be used to buy foreign newspapers.
CBDCs will alter the geopolitical landscape; when local currencies become more convenient, the dominance of the dollar will be in peril
. This does not bode well for the efficacy of sanctions, or for oversight of the global financial system.
Despite this, western nations will have to deploy digital currencies too, lest they are left behind by better offerings from the East or, more likely, private payment alternatives.
Why should telcos care?
If blockchain is to revolutionise money, what else might it revolutionise? Deloitte predicts
that blockchain-powered identity management will give telecoms companies a new form of revenue, and Helium are trying to decentralise internet networks
. How feasible are these more ephemeral uses of the blockchain?
It has been said that technology is a force akin to nature. And much like nature, technology undergoes evolution, transforming and adapting until it finds its fit. Early adopters of cryptocurrency may baulk, but government issued digital currencies could be the true revolution of Bitcoin. Whilst private cryptocurrencies will continue to hold their appeal, public alternatives will likely be mandated by law.
Thus, once CBDCs are deployed, telecoms customers may well be paying their bills with cryptocurrency.
Regardless of what form the future of money takes, Cerillion can help you stay ahead of the curve. With evergreen software updates, our BSS/OSS product suite keeps abreast of changing payment trends allowing you to incorporate any payment mechanism, be it cash, card or crypto.