The future of money
WHAT’S NEXT: PEER TO PEER BLOCKCHAIN TECH LIKELY TO ADVANCE FAST
Next evolution of digital enablement in Africa is likely to progress to government-issued digital currencies.
The growth of the digital economy has already distorted many industries, from media to transport, just as technology has changed the face of payment systems. Next in line? Money itself.
Currencies have taken on many shapes and sizes over the past seven centuries, from the Yapese who used 3.6m stone wheels called rai when executing exchanges to the famous “gold standard”.
However, ask any monetary economist when the tide changed for money as we know it and they will say August 15, 1971.
That was when then US president Richard Nixon directed his secretary of treasury to temporarily suspend the convertibility of the dollar into gold or other reserve assets, ending the gold standard and migrating the dollar to today’s fiat standard.
Because almost all economies use the dollar as their reserve currency, the unbundling of the US from the gold standard meant money supply was no longer tethered to national gold reserves and consequently money supply has grown exponentially over the past 47 years.
But with money supply at its peak and debt at unprecedented levels, what is the next frontier for fiat money?
Fiat money demise:
Along with exponential growth in money supply over the past 40 years, credit has expanded drastically, ushering in the quintessential shopper accessory – the credit card. Today, Visa and Mastercard control more than 80% of the global credit card market.
However, developments in fintech in the past decade have seen mobile money disrupt the playing field. Millennials have hastily accepted the new payment method.
Buoyed by a surge in the digital economy and smartphone penetration, unorthodox financial services have gained ground. Also, as the internet of things gains ground, payment systems have evolved with the emergence of machine-to-machine transactions.
Moving beyond mobile money:
Arguably Kenya’s most famous contribution to the world is mobile money. The M-Pesa platform – an SMS payment service that boasts over 30 million users in 10 countries today – reached over six billion transactions in 2016. That’s 529 transactions a second.
Mobile money has also become the face of financial inclusion in many developing countries, with banks embracing the platform.
Grant Niven of EY says: “While there is still work to be done to get banks, operators and market participants to integrate efforts to drive financial inclusion, private sector solutions that bridge the gap between mobile money and banking are also growing.
“These include eTranzact, operating in five countries, and txtNpay and expressPay in Ghana, which enable consumers to bank and pay bills.”
“The next evolution of digital enablement in Africa is likely to progress to government-issued digital currencies with the imminent eCFA launch, the name of its digital currency, by the West African Economic and Monetary Union,” says Niven.
“The advancement and adoption of peer-to-peer based blockchain technology to increase interoperability of money across borders is likely to advance fast.”
Mobile money is the face of financial inclusion