Since the 2008 global financial crisis, the financial regulation scenario faces new drivers and challenges. Bank transactions by internet and mobile banking have sharply increased. In this digital environment, new technologies – such as advanced analytics, big data, in addition to the use of robotics, artificial intelligence, new forms of encryption and biometrics – have been enabling changes in the provision of financial products and services. The current wave of financial innovations is being increasingly oriented to more friendly digital channels through apps in the context of mobile banking strategies that privilege the development of open banking and further interactions with social media
Indeed, the increasing digitalization of financial transactions is also related to changes in the banks’ competitive environment, where the intense growth of the start-ups called fintechs, especially since 2010, has revealed a new articulation between finance and technology. Such fintechs are companies organized as digital platforms with business models focused on costumer relationship in the areas of payment systems, insurance, financial consultancy and management, besides virtual coins. Among other initiatives, we can highlight the crypto fintech products, such as a consumer app for the Bakkt, the Bitcoin futures contracts exchange run by the Intercontinental Exchange.
In this digital environment, new technologies – such as advanced analytics, blockchain and big data, in addition to the use of robotics, artificial intelligence, besides new forms of encryption and biometrics – have been enabling changes in the provision of financial products and services that are challenging current central banks’ patterns of policy and regulation.
The transformations provoked by these start-ups in the financial markets have raised a relevant discussion about the impacts of recent technological innovations on the financial regulation agenda – mainly focused on the Basel Accords- and the future of the world system of currencies. The intense changes are settling new questions for regulators, such as:
- How to regulate fintechs’ activities of financial management that collect, treat and custody information from users?
- How to regulate the credit markets since start-ups (non-banks) are developing electronic platforms to sell loans?
Taking into account the global changes in the provision of financial products and services, central banks have closely also followed the recent expansion of crypto currencies (Tapscott and Tapscoot, 2018). Moreover, the World Economic Forum (WEF) launched a project on central bank digital currencies led by Ashley Lannquist. Over a dozen central banks, financial institutions, academics, and other international organizations have been consulted to create a WEF kit that includes worksheets, information guides, and analysis project. Indeed, central banks’ interest in state-backed digital currencies already exists, and some state-backed digital currencies exist, such as Senegal’s CFA Franc) and the Venezuelan Petro. On the horizon there are also other initiatives, like China’s own digital yuan. Moreover, the Bank of Thailand announced it had completed trials with Hong Kong for a prototype.
So far, it seems like the competition scenario of crypto currencies already includes central banks. Banks, fintechs and central banks are issuing different currencies that this leaves the way open to a market competition process where different digital currencies would be traded at variable exchange rates. In this respect, it is interesting to remember that Hayek, in his book the Denationalisation of Money (1976) highlighted that, in the context of free competition in the currency market, the marginal costs of producing and issuing a currency would be close to zero and the nominal rate of interest would also be driven (close) to zero.
The global monetary and financial scenario is getting more complex. Considering the evolution of this free market monetary regime scenario, some questions should be addressed to students of economics:
- Which should be the scope of the central banks and of other financial regulators when considering the growth of crypto currencies and fintechs?
- What would be the main consequences of free competition and profit maximisation on both monetary and financial markets?
- Which currencies (digital or not) would survive? Only those currencies that have a stable purchasing power would survive?
- Do central banks need this policy-makers toolkit for state-backed digital currencies? Why?
Moreover, What is at stake? In short, central banks turn out to be competitors. The current frontier of financialisation is leaving the way open for a global and comprehensive privatisation of money. Indeed, the conceptulaizaiton of money as a public good is being challenged.