Did we solve a payments problem that no longer exists?

I’ve written before about Bitcoin and so this time I want to move away from crypto currencies towards some of the underlying technology; specifically technology being built by Ripple Labs.  Ripple is entirely focused on building a protocol (the Ripple protocol) which aims to make transacting as easy as emailing.  It is underpinned by a currency (XRP) but unlike Bitcoin, the purpose of XRP seems more to aid efficient real world currency transactions rather than being a tradable asset in its own right.  To learn more, I suggest you read their great ‘Primer.’ They use the analogy of early email solutions to illustrate the inefficiencies in today’s payments world; inefficiencies they are trying to remove.  In the beginning there were a bunch of providers with email services - e.g. Compuserve and AOL.  They were isolated and couldn’t talk to each other, just like today’s national clearing mechanisms.  Along came SMTP as the universal email protocol and those isolated services were able to talk to each other using a common language.  To complete the analogy, Ripple is saying that the world’s current payment infrastructures are a lot like the early days of email.  And now with the Ripple protocol, we now have the financial equivalent of SMTP in our hands.  The potential result being (nearly) instant payments, globally and cheaply.  So, a global, distributed clearing and settlement network to replace all the current currency / country linked infrastructures that we have today.  That’s quite something.

So, how does this link back to the title of my blog?  Well, if we look at one of the arguments behind the Euro and SEPA, they were established to drive efficiencies across the single market of the EU.  Before the introduction of the Euro, different currencies caused significant challenges for cross-border trade.  The answer to this was to create a single currency and then a single payments scheme to bring harmonisation across the Eurozone and the end of cross border transactions within the SEPA zone.  But as we enter 2015, we could arguably achieve the same and more with these emerging technologies.  It could have given us that single settlement mechanism and furthermore, instant settlement at very low cost.  Yes, we would all still have our own currencies and so FX would still be required.  But, not only have there been strong arguments since 2008 that maintaining individual currencies may not have been a bad thing (you can’t have currency union without fiscal union…), but the Ripple protocol encourages competition amongst so called currency ‘market makers’ to keep FX spread down.

It seems that for Europe, a new physical currency was deemed a necessary underpinning to an efficient trading/payments landscape.  As we leave behind the year in which SEPA became a reality, I can’t help but wonder whether we would have made the same decisions if the technologies we see emerging today, had been around at the turn of the century.