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