The industrial revolutions have had a direct impact/consequences on the social, economic, political, and health of the human race globally, but for the purpose of this discourse, I will be much concerned about its influence on the monetary system of finance.
The first industrial revolution started from 1760 to 1830 and mostly confined to Britain which gave rise to the use of steam engines and railways with London as the financial powerhouse with the use of pounds sterling as a medium of exchange for trade.
The pounds sterling was replaced with the gold-backed dollar between 1925 and 1944 during the second industrial revolution in the 19th Century with the advent of electricity, crude oil, and gas, and centred around Britain, Europe, North America, and Japan. This era witnessed the establishment of Bretton Woods Institution (World Bank and International Monetary Fund) and the Bank of International Settlement in 1930 until the paper dollar replaced the gold-backed dollar in 1971 by Former President Richard Nixon after the beginning of the third revolution in 1969.
The third revolution brought forth the rise of electronics, telecommunications, and of course computers. This opened the doors to space expeditions, research, and biotechnology. This period has witnessed a massive increase in global trade and gross domestic product(GDP) with the rise in economic power blocs like the BRICS nations (Brazil, Russia, India, China, and South Africa), Gulf Cooperation Council comprising of Saudi Arabia, Qatar, United Arab Emirate, Bahrain, Kuwait and Oman and the ASEAN nations like Singapore, Malaysia, Indonesia, and the Philippines.
The Societe for Worldwide Interbank Financial Telecommunications (SWIFT) was formed in 1974 to facilitate cross-border payments and messages amongst financial institutions. With the United States as the global watchdog and its currency, the Dollar serving as a hegemonic reserve currency accounting for about sixty-two percent of world trade(see The Dollar: The world’s reserve currency www.cfr.org) it has had its downside effect of recording successive trade deficits in the nation’s balance of trade with mounting debt profile also known as the Triffin Dilemma Effect.
The sustainability of this debt-based monetary economy was been put on trial after the global financial crises in the year 2008 leading to the fall of confidence in the Dollar, (a repeat of the loss of confidence in the Pounds Sterling and Gold.
Dollar backed Standard) and a 27.63% increase in the price of Gold from $872.37 in 2008 to $973.66 in 2009 as investors look for safe havens to preserve wealth. The current price of gold per ounce as of March 10 2021 is $1,717.60. With the advent of the Internet built upon the third (digital)industrial revolution, emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, quantum computing, nanotechnology, and blockchain technology evolved.
A blockchain is also known as Distributed Ledger Technology (DLT) is a system of recording information in a way that makes it difficult or impossible to change, hack or cheat. It’s essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. The first pioneer digital asset (cryptocurrency) created on this blockchain is bitcoin. It is designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of a computer database.
A major pitfall of bitcoin is that it has remained anonymous under the name Satoshi Nakamoto whose face has remained unknown, without an office or company behind it, its mined majorly in China and uses up large amounts of electricity which makes it not environmentally friendly and sustainable with no utility or use case but as a source of storage of value and mainly used for speculation.
Other private digital assets, stablecoins, global stable coins by private firms, and recently Central Bank Digital Currency (CBDC) by countries has evolved for cross border payments which are faster(it takes four to five seconds to receive value and settlement), cheaper in terms of transaction cost($0.0004 per transaction), negligible energy consumption, very scalable(perform 1,500 transactions per second) and interoperable(works across the network).
There is no doubt that distributed ledger technology is disruptive and bound to replace the obsolete and antiquated SWIFT system which has been in operation for over forty-six (46) years and capable of unlocking over twenty-seven trillion united states dollars in nostro-vostro accounts that are lying dormant in global financial institutions according to McKinsey & Company Report.
It’s important to highlight the major policy and legal changes in the ecosystem of the global financial system by the leading superpowers and trading nations to aid the smooth transition to this new international monetary system otherwise known as The Global Reset.
The Office of the Comptroller of the Currency (OCC) in the United States of America formerly chaired by Brian Brooks made a press release on the 22nd of July 2020 captioned ‘Federally Chartered Banks and Thrifts May Provide Custody Services For Crypto Assets’. Another press release was made on the 4th of January 2021 captioned ‘Federally Chartered Banks and Thrifts May Participate in Independent Node Verification Networks and Use Stablecoins for Payment Activities.
The Federal Reserve Chairman Jerome Powell said the central Bank is looking closely at the prospect of issuing a “digital dollar.” The US Treasury Secretary Janet Yellen has also signaled interest in backing digital dollar research. US Lawmakers introduce Bill to clarify Crypto Regulation.
Christine Largade the President of the European Central Bank gave a speech, ’Payments in a digital world” at the Deutsche Bundesbank online conference on banking and payments on the 10th of September 2020 clearly supporting the use of digital assets for payments. The European Central Bank will decide in April whether to move ahead with a preparatory work to launch the digital euro.
China has launched its digital yuan officially dubbed Digital Currency Electronic Payment(DCEP)in the Shenzehen region as a second trial of electronic cash.
SWIFT made an announcement on the 20th of April 2016 about a collaboration with Accenture to explore blockchain technology with the use of Distributed Ledger technology in financial services. This collaboration and upgrade /migration resulted to the change of messaging language from ISO 15022 to ISO20022.
The London Interbank Offer Rate known as LIBOR enters its final chapter on the 31st of December 2021 for a full switch to Secured Overnight Offer Financing Rate SOFR.
It’s my strong opinion that we are days and months away from this transition through mass adoption by Central Banks and financial institutions to a new monetary system with the use of digital assets with a gradual and complete phase-out of fiat currency. There is a narrative being built in the media to support and reinforce this transition, that fiat currencies transmit coronavirus, the pandemic that has brought global trade to a halt.
Just as the internet transformed our lives forever and made most post offices redundant, made access to telecommunication services cheaper, faster and more efficient, so also will this new technology lead to the growth of fintech companies acquiring traditional commercial banks and a redundancy in most bureau de change houses and people hawking foreign exchange or forex on the streets of most cities in Nigeria.
As our sovereignty is at stake here, I look forward to seeing the Central Bank of Nigeria issuing further directives and regulatory clarity to navigate the nation’s economy under this new global financial order.
Article was written by Anitche Ndudim Rowland
CIFI: Despite CBN funds, can the creative industry thrive in this environment?
The Nigerian technology ecosystem is at its nascent stage, and beyond money, there is the need to ensure an enabling environment for operators.
Despite a frail 2020 for the Nigerian economy, there was a bit of silver lining. The Nigerian Information, Communication, and Technology (ICT) sector emerged as the leading segment of the economy aiding the country’s exit from recession by a whisker in Q4 2020.
The development, in effect, justifies to some extent, the earlier decision of the Central Bank of Nigeria (CBN) to create the Creative Industry Financing Initiative (CIFI) to support businesses in the following areas:
- Information Technology
- Movie Production and Distribution
The CBN began to contemplate the idea of the CIFI following the influx of private investment into the technology space in 2019. For instance, according to the African Tech Start-ups Funding report for 2019, Nigeria got foreign exchange inflows totalling US$137.9m in the period.
This continued into 2020, considering that despite the pandemic, the sector still attracted an additional US$122m in seed funding. Furthermore, the sector contributed 13.12% of the total real Gross Domestic Product (GDP) of Nigeria which came to N19.53tn as of Q4 2020.
Evaluating the progress made so far with the CIFI, as of Q3 2020, the CBN had reportedly disbursed c. N3.12bn in intervention to 320 beneficiaries. While there are concerns around the tenor of the loan for Software Engineers and accessibility of funds to other technological entrepreneurs, we laud the CIFI and encourage relevant agencies to do more.
The Nigerian technology ecosystem is at its nascent stage, and beyond money, there is the need to ensure an enabling environment for operators. For instance, the recent BVN concerns that rocked the financial technology space and the regulatory uncertainty which is a key risk for telecommunication operators among other concerns, are issues that should be decisively dealt with.
CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange
Book of States 2020: Vast resources, low industrial development
State governments have been heavily reliant on FAAC distribution to meet recurrent expenditure, thus making no room for capital spending.
The Nigerian Investment Promotion Commission (NIPC) in a recent report titled “Book of States 2020” highlighted the investment prospects of the 36 states of the federation including the Federal Capital Territory (FCT) to steer attention to the subnational investment opportunities in Nigeria. We note that the report is an outcome of a partnership between the commission and the Nigeria Governors’ Forum (NGF) to showcase the key investment opportunities for each state.
The report focused on the key areas of physical capital (airports, railway stations and seaports), resources (natural and minerals) and demography (population and labour force) of each state including their Internally Generated Revenues (IGRs), budget spending and household consumption.
While we acknowledge the decrepit infrastructure as a major hindrance to the growth of businesses and economic prosperity of many states, we note the little emphasis placed by the states on financing capital projects to attract private sector investments. Over the years, state governments have been heavily reliant on FAAC distribution to meet recurrent expenditure, thus making no room for capital spending.
The truth is that as long as state governments do not make desperate efforts to develop their internal revenue-generating capacity, the states in the country would continue to operate an inefficient rent collection system where they rely solely on FAAC allocation to meet basic needs such as paying workers’ salaries.
In our view, we believe the efforts to revive the ailing status of many states depend on the effectiveness and soundness of policies made to propel investments. Currently, Nigeria has enormous potentials to improve tourism given its ample amount of resources to attract both local and international tourists. Many countries in the continent such as South Africa, Kenya and Morocco have made great fortunes from tourism.
Over 50% of the states have recorded no foreign direct investments over time due to little or no requisite infrastructure needed to attract capital inflows amid untapped resources in these affected regions. Also, we believe the Federal Government needs to relax its control on some of the state-owned resources to enable the states better exploit these resources.
CSL Stockbrokers Limited, Lagos (CSLS) is a wholly-owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.
Nairametrics | Company Earnings
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- Nigerian Breweries Plc grows profit by 39% to N7.7 billion in Q1 2021.
- Trans Nationwide Express Plc profit after tax slumps by over 95% in Q1 2021
- FCMB approves FY 2020 dividend pay-out of N2.97 billion to shareholders.
- Africa Prudential Plc posts profit after tax of N381.35 million in Q1 2021.
- Sovereign Trust Insurance Plc notifies stakeholders of 26th Annual General Meeting.