Digital finance, cryptocurrencies and blockchain technology-powered economics are sweeping through markets in the developing world unchallenged, say experts at the World Economic Forum in Davos.
Economists believe that rather than going shoulder-to-shoulder with banks and conventional financiers, fintech operations and cryptocurrency are booming in emerging markets. Digital disruption, they say is not even possible as no there is “no mature financial system to disrupt.”
Keyu Jin, a professor of economics at the London School of Economics (LSE), stated,
“In fact, digital services have actually filled in, rather than disrupted. China is one of the leading examples where a developing country has some of the leading technologies in fintech. And it is very clear that this very integrated system has helped reach rural areas, and helped small business owners.”
Jin and others were speaking in a panel session entitled Shaping the Future of Financial and Monetary Systems, held at the annual forum in Davos on Tuesday.
Panel members discussed the ways that digital disruption is currently reshaping the global financial services sector.
Jin suggested that entire communities left out of the loop by conventional finance and banking could soon be making use of digital tokens rather than conventional bank-related alternatives.
Developing economies, particularly in Asia, are increasingly looking toward digital alternatives to traditional finance in an effort to reach out to millions of unbanked individuals – using smartphone and blockchain technology.
China is reportedly on the verge of releasing its digital yuan – but could be pipped at the post by Cambodia. The central National Bank of Cambodia is working with a Japanese blockchain developer on a digital finance solution targeted specifically at the 70%-80% of the population that is currently unbanked.
Jin stated, “Countries like China, India and Brazil are big. They account for more than 50% of [global] GDP.” However, the LSE expert stated that the nations mentioned were not sufficiently “included in the international financial system.”
Katherine Garrett-Cox, the chief executive officer of Gulf International Bank and the panel’s moderator, asked participants how openness brought about by digital disruption to financial and monetary systems could increase inclusiveness.
Garrett-Cox also made note of the digital sector’s “inherent conflict” with the financial establishment, which is both highly regulated and controlled in its nature.
Jeremy Allaire, the co-founder and CEO of Circle, the American crypto firm that operates the USD Coin stablecoin, said,
“Digital disruption in the financial system today has really been at the periphery. It’s been putting a new user interface on top of an existing system, basically, or lipstick on a pig.”
Allaire opined that the world is now at an inflection point whereby financiers are “finally revisiting the very core of the financial system.” The Circle chief stated that experts were now “looking at the very nature of money,” and looking at the way it is issued and distributed.
Allaire claimed that driving factors in recent developments included “an alliance by some of the largest technology companies in the world.”
He made reference to “a stablecoin project that will reach billions of people” – most likely meaning Facebook’s Libra project.
State-backed initiatives could also propel digital tokens to success, including what he termed a “stable value cryptocurrency” to be launched this year by “massive national sovereigns such as China.”
Bankers on the panel conceded that digital solutions were very much in the ascendancy.
Michael Corbat, CEO of Citigroup, said the world was at the “very early stages of writing the next chapter of banking,” admitting “That chapter is entirely digital.”
However, Corbat claimed,
“I think that what some people miss in banking is that this analog to digital transformation is not the standing start of a new industry.”
Meanwhile, the panel also had its say on regulation in the fintech industry. Allaire said, “I think that it’s key not to overregulate early.”
And the Circle CEO added,
“Regulators are now stepping in. I think that with technical innovation in the financial system there is this tradeoff: how do we allow for the same kind of arc of innovation that took place in other Internet industries [such as] retail, transportation, media and communication […] knowing that there are going to be negative externalities?”