By Olga Feldmeier, CEO at SMART VALOR
They used to say that cash was king. But as more and more countries move towards digital payment methods, many are asking whether this is the beginning of the end for cash payments altogether.
In Sweden, for example, cash is now used in less than 20% of in-store transactions – half the number five years ago, according to Sweden’s central bank Riksbank, and there’s a similar shift in other countries with a well developed banking and payment infrastructure.
Thanks to the rise of mobile payments, developing countries are also moving away from using cash. Kenya’s world-leading mobile-money system, M-PESA, which was launched in 2007 by Safaricom, lets people transfer cash using their phones in what is arguably one of the most successful schemes of its kind.
Earlier this year, Safaricom announced that it was partnering with PayPal to boost its e-commerce capabilities in Kenya. This new service enables Kenyan customers to seamlessly transfer money between PayPal and Safaricom’s M-Pesa mobile wallets, opening up global marketplaces to Kenyan entrepreneurs and businesses.
Clearly, the move to digital money is well underway – but some are now wondering whether cryptocurrencies going ‘mainstream’ would encourage us to ditch cash altogether. From my perspective, I don’t see cryptocurrencies so much as the start of a cashless society, but as an important step in the evolution towards it.
It is now clear that cryptocurrencies will accelerate this trend towards more mobile, cashless payments, in both developed and developing markets. We’ve been talking about national cryptocurrencies, for example, for a few years now – although this is yet to become a widespread reality. Earlier this year, Venezuela was reported to have raised over $5bn through an ICO for its sovereign-backed cryptocurrency, Petro. Other countries with less stable monetary policies, such as Turkey, and sanction-hit countries such as Iran, have also shown interest in tokenization of a national currency. Even nations like China and Russia have spoken about potential creation of a national cryptocurrency.
For now, the majority of news around national cryptocurrencies is coming from less stable, non-democratic countries. This is unsurprising, as putting a national currency on the blockchain significantly increases transparency and traceability of monetary flows. It also enables movement of funds in a fast and cost-efficient way, outside of the banking system. Needless to say this is the great advantage for countries plagued with sanctions, capital flight and the ‘dollarization’ of their economies.
As the world searches for alternative reserve currencies, however, there may be a unique opportunity for financially mature countries such as Switzerland and the UK. The Swiss Franc, for example, already received ‘safe-haven’ currency status, meaning that tokenizing it could promote it to becoming an alternative reserve currency to be used by the rest of the world.
In the blockchain space, we see a lot of startups experimenting with new, “stable coins” such as Tether and Bitfinex, which are price-stable cryptocurrencies with a market price that is pegged to another stable asset. There has, however, been concern around the legitimacy of stable coins. The majority are not, or are only partially backed by currencies, such as the US dollar. And with ICO and securities on the blockchain set to expand, we urgently need to have a workable solution for cryptocurrency.
The current problem with existing cryptocurrencies, of course, is that they are too volatile. That means they are tricky to use as a base for an investment platform or for the movement of assets. A more stable version, or even national cryptocurrency, could solve this problem and become yet another catalytic force to make the move to a cashless, crypto-first society happen.
As more and more assets move on the blockchain, I expect that we see the rise of smart securities issued on the blockchain, facilitating stable, national cryptocurrencies. So before we know it, businesses will not only go cashless. They’ll go crypto.