This article is Sponsored Content by Prepaid International Forum
Robert Courtneidge is a top payment lawyer and a payment industry expert. In this article, Locke Lord lawyer and co-founder of the Prepaid International Forum, Robert Courtneidge shares his thoughts and opinions on the development of CBDCs.
At the beginning of human existence, bartering was used as the act of trading a good or service between one person and another without using money. For example, some people could make fishing rods but could not fish and some could make hoes but could not farm; therefore, the exchange of tools for food was fair.
Soon, however, this no longer worked as some items were very large or too heavy to carry, and so a token was needed to represent the value of the item to be accepted in its place.
Early tokens were small cowrie shells, but later gold and silver were used and rather than having a value on the coins, they were valued on their total weight. It has been recognised that around 960BC, China was the first nation to move from bartering tokens to paper notes.
Nationally issued banknotes became more common in Europe during the 17th and 18th centuries, while it wasn’t until the 1860’s that the US government-issued paper currency. At that point, the benefit of paper money was that it was backed by governments and represented an exchange for gold or silver.
Finally came the advent of central banking. The exchange of paper notes for gold or silver changed in 1971 when President Richard Nixon announced that the US would no longer convert dollars to gold at a fixed value. This made it much easier for governments to issue more money when required: quantitative easing. The implementation of quantitative easing allows the central bank to simultaneously increase the amount of central bank money used in the system that banks use to pay each other and the amount of commercial bank money.
All national currencies are now ‘fiat’ currencies from the Latin meaning “so be it”, as it means you trust the country’s government issuing the money to back it.
Payments have been around for thousands of years, with electronic payments emerging in the 1950s. Whilst the movement to universally accepted national bank notes was relatively slow, it could be said that the development of electronic payments over the last 60 years has been anything but that.
From the basic plastic ‘Payment Card’, the industry has moved to wearable devices and phones acting as the payment device. It has also gone further with our bodies being the authentication token to make payments, such as fingerprint and facial recognition already being tested in markets like China and the USA.
The most recent changes have been the advent of the Open Banking era, where banks have been required to open their doors (of their account systems) to third party aggregators and payment providers to enable new fintech businesses to create payment solutions.
However, we are now on the cusp of the latest change: virtual currency and cryptocurrency. These enable users to send or receive value nearly instantly without the intermediation of financial institutions. Cryptocurrencies are currently not a universally accepted payment method. They must use exchange intermediaries to convert the digital assets into assets (such as GBP, Euros, or dollars) that can be more readily used.
Still, once the central banks enter the game with their central bank digital currencies known as CBDCs, then digital wallets owned by the user, not the bank, will become mainstream, and the advent of the digital age of money will truly begin.
