Navigating the Digital Revolution: Bigtechs, Central Banks, and Your Wallet

How Bigtechs Are Coming for Your Money and What You Can Do About It

Imagine you wake up one morning and check your phone. You see a notification from PayPal, telling you that you have received some PayPal Coins in your account. You wonder what these coins are and how you can use them. You open the app and see that PayPal Coins are a new digital currency issued by PayPal, backed by US dollars. You can use them to pay for goods and services on PayPal, or exchange them for other currencies at a fixed rate.

Sounds convenient, right?

But what if we told you that PayPal Coins are not the only digital currency out there?

What if we told you that Apple, Amazon, X (former Twitter), and other Bigtechs maybe also issuing their own currencies, competing with each other and with the traditional money issued by governments and central banks?

This is not a hypothetical scenario. This is the reality we are facing today. Bigtechs are not just offering payment solutions, they are issuing their own currencies, challenging the role of sovereign money, and threatening the stability of the financial system.

In this blog post, we will explain why this is happening, what are the risks and opportunities, and what you can do to protect yourself and your money in this digital revolution.

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Why are Bigtechs issuing their own currencies?

Bigtechs are large technology companies that have a huge user base, a lot of data, and a lot of influence. They are constantly looking for ways to expand their business, offer new services, and increase their profits. One of the areas they are targeting is the financial sector.

Bigtechs see the financial sector as an opportunity to leverage their existing platforms, such as social media, e-commerce, or messaging, to offer financial services to their users. These services include payments, lending, saving, investing, and more.

By offering these services, Bigtechs can benefit from several advantages, such as:

• Lower costs: Bigtechs can use their existing infrastructure, data, and technology to offer financial services at a lower cost than traditional financial institutions. They can also avoid some of the regulatory and compliance costs that apply to banks and other financial intermediaries.
• Higher convenience: Bigtechs can offer financial services that are integrated with their platforms, making them more convenient and accessible for their users. They can also use their data and algorithms to tailor their services to the needs and preferences of their users, offering a better customer experience.
• Greater reach: Bigtechs can reach a large and diverse customer base, especially in emerging markets and underserved segments, where access to financial services is limited or costly. They can also leverage their network effects and brand recognition to attract and retain customers.
• More innovation: Bigtechs can use their technology and creativity to offer new and innovative financial services, such as buy-now-pay-later, peer-to-peer lending, or robo-advisory. They can also experiment with new business models, such as subscription-based or freemium services.

One of the most ambitious and disruptive innovations that Bigtechs are pursuing is the issuance of their own digital currencies. These are not the same as the so-called crypto-assets, such as Bitcoin or Ethereum, which are volatile, unregulated, and often used for illicit purposes. These are stablecoins, which are digital tokens that are pegged to a fiat currency, such as the US dollar, or a basket of currencies, such as the Special Drawing Rights (SDR) of the International Monetary Fund (IMF).

Stablecoins are designed to offer the benefits of both fiat money and digital money. They are supposed to be stable, liquid, and widely accepted, like fiat money. They are also supposed to be fast, cheap, and transparent, like digital money.

By issuing their own stablecoins, Bigtechs aim to create their own payment ecosystems, where their users can transact with each other and with third parties, using their platforms and currencies. They also aim to reduce their dependence on the existing payment systems, such as card networks, banks, or central banks, which charge fees, impose rules, and create frictions.

What are the risks and opportunities of Bigtechs’ stablecoins?

The emergence of Bigtechs’ stablecoins poses significant challenges and opportunities for the financial system and society at large. On the one hand, Bigtechs’ stablecoins could offer some benefits, such as:

• Lower costs: Bigtechs’ stablecoins could reduce the cost of payments, especially for cross-border transactions, which are often expensive, slow, and complex. Bigtechs’ stablecoins could offer faster, cheaper, and simpler payments, using their global platforms and networks.
• Higher convenience: Bigtechs’ stablecoins could offer higher convenience for users, who could use their existing platforms and devices to access a variety of financial services, without the need to open separate accounts, download additional apps, or provide additional information. Bigtechs’ stablecoins could also offer more features and functionalities, such as loyalty programs, rewards, discounts, and personalization, to enhance the user experience.
• Greater inclusion: Bigtechs’ stablecoins could offer greater inclusion for people who are unbanked or underbanked, especially in emerging markets and underserved segments, where access to financial services is limited or costly. Bigtechs’ stablecoins could provide them with a safe, easy, and affordable way to store, send, and receive money, using their platforms and currencies.

On the other hand, Bigtechs’ stablecoins could also pose some risks, such as:

• Lower stability: Bigtechs’ stablecoins could lower the stability of the financial system, by creating new sources of volatility, contagion, and systemic risk. Bigtechs’ stablecoins are not backed by the full faith and credit of a government or a central bank, but by private reserves, which could be subject to market fluctuations, operational failures, cyberattacks, or fraud. Bigtechs’ stablecoins could also be vulnerable to runs, as users could lose confidence in their value or solvency, and try to redeem them en masse, creating a liquidity crisis. Moreover, Bigtechs’ stablecoins could create a feedback loop between the financial markets and the real economy, as changes in the value or demand of their stablecoins could affect the prices and availability of the underlying assets or currencies, and vice versa.
• Lower sovereignty: Bigtechs’ stablecoins could lower the sovereignty of the governments and the central banks, by challenging the role of sovereign money, which is a public good that central banks manage on behalf of the public, to ensure stability, trust, and fairness. Bigtechs’ stablecoins could undermine this role, by creating a parallel system of private money, which is not subject to the same rules, standards, or oversight as sovereign money. Bigtechs’ stablecoins could also create a two-tier system, where some people have access to sovereign money and others have access to private money, creating inequalities and discriminations.
• Lower privacy: Bigtechs’ stablecoins could lower the privacy of the users, by collecting, storing, and analyzing their financial data, which is sensitive, personal, and valuable. Bigtechs’ stablecoins could use this data to profile their users, target their ads, influence their behaviors, or sell their products. Bigtechs’ stablecoins could also share this data with third parties, such as advertisers, marketers, or governments, without the consent or knowledge of the users. Moreover, Bigtechs’ stablecoins could be vulnerable to data breaches, identity thefts, or surveillance, as they are based on digital technologies, which are not always secure, private, or anonymous.

Key Takeaways:

1. Bigtechs are issuing their own currencies, challenging the role of sovereign money.
2. This poses a threat to the stability of the financial system.
3. Central banks are responding to this challenge. The ECB is preparing to launch a digital euro.
4. The digital euro is a public good that will complement cash.
5. It provides a safe and convenient way to pay online and offline.

In conclusion, the digital revolution is transforming the way we think about and use money. As we navigate this new landscape, it’s crucial to stay informed, critical, cautious, proactive, and resilient. After all, the future of money is not just about technology, but also about people, values, and choices. Let’s make sure it serves us all.

Disclaimer: The views expressed in this blog are not necessarily those of the blog writer and his affiliations and are for informational purposes only.

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