A Prediction for the Future of Money

A CoinDesk columnist, J P Koning, has bravely made five predictions about the future of money.

1. Decentralised finance won’t eclipse centralised finance. Eventually, they’ll just blur together.

As the CEPR has argued, the ability of Decentralised Finance (DeFi) products to carry out automated programmable activities are already possible with today’s payment systems. No doubt DeFi will accelerated their development.

Equally, DeFi products will also emulate what regular finance does today, albeit this will require them to work within the regulatory framework in order to get acceptance and, therefore, scale, ie. they will choose to comply voluntarily. In time users won’t care, or even be aware, of whether their financial activity is on a DeFi or traditional banking platform.

2. El Salvador won’t be known as a watershed moment. It’ll be known as a reality check.

Volatility is an anathema to most people. Cryptocurrencies are inherently volatile and so if there is an alternative that is not volatile people will choose that.

3. Cash will fade away. So will CBDCs.

This is an interesting take from the author. He argues that central bankers are jealous of the huge interest and energy devoted to cryptocurrencies and stablecoins. CBDCs are their reaction to this to ensure they are part of the story.

He argues that citizens will turn out to be uninterested in CBDCs since their existing digital solutions actually do what they need.

On the other hand, he argues that cash will continue to decline. ‘If millennials don’t know how to write a check in 2011, Generation X won’t know how to use cash in 2031.’ He suggests that since all financial tools rely on the central bank settlement system, central banks should not worry about this change.

4. If governments don’t force KYC across the entire internet, MasterCard and Visa will.

Processing payments for illegal online goods constitutes money laundering.

Visa and Mastercard have to ensure their networks are legal to avoid potential conviction.

In October 2021 Mastercard introduced a requirement for internet sites that host user-generated pornography to adopt identity verification rules and vet all content for illegal material. If they don’t, they are dropped from the Mastercard network. Since losing card access means commercial death, most sites have fallen into line.

He believes this will be extended to sites using user-generated content – YouTube, Rumble, Twitter, Facebook etc.

5. Along comes a universal stablecoin standard.

Theoretically, stablecoins are not volatile in the same way as cryptocurrencies. Clearly the author sees them as having a future.

He argues that because people find having too many different stablecoins to choose from, stablecoin issuers will have to build an interoperable standard so that coins are interchangeable on a 1:1 basis.

He thinks the stablecoin industry will go through a series of rounds of failure, growth and merger, leaving fewer, bigger coins, which will make the creation of an interoperable standard easier. At the end of all this, stablecoins will no longer be seen as speculative but will be in a position to challenge the dominance of card networks for online commerce.