How Fintechs are Rethinking the Concept of Money

The concept of money has evolved substantially over the millennia, from shells and precious metals to paper bills and digital entries in banking systems. We now stand at the precipice of another fundamental advancement, in which technology is not just changing how we interact with money, but redefining its very nature. This evolution goes beyond simple digitalisation, as programmable money takes hold through cryptocurrencies and re-invented traditional currencies, promising to reshape global finance and challenge our traditional understanding of the monetary system.

Why Programmable Money Matters

Programmable money is bringing about a paradigm shift in how we think about and use currency. Unlike traditional digital payments, which simply move value from one account to another, programmable money can execute operations automatically based on predefined conditions. 

It enables automated compliance and regulatory oversight, reducing costs and human error in financial operations. It also allows for real-time settlement of complex financial instruments by eliminating counterparty risk, while removing human-caused errors and inefficiencies from capital markets. In addition, programmable money facilitates new business models through micropayments and automated revenue sharing that were previously impractical due to high transaction costs and management overhead, enabling new routes for entrepreneurship.

The ability to embed rules and conditions directly within money itself opens up possibilities for sophisticated financial products that can operate without intermediaries. For instance, programmable money can automatically execute payment schedules, enforce spending limits or implement complex financial agreements without human intervention.

Why Stablecoins Are the Future of Global Finance

Stablecoins are cryptocurrencies pegged to stable assets, such as the US dollar, euro or gold, making them less volatile than traditional cryptocurrencies like Bitcoin or Ethereum. By maintaining a consistent value, stablecoins bridge the gap between the reliability of fiat money and the technological benefits of cryptocurrencies. 

One of the most important advantages of stablecoins is their track record of increasing financial inclusion. Over 1.4 billion adults remain unbanked globally, often due to a lack of access to traditional banking infrastructure or high transaction fees. However, stablecoins only require an internet connection and digital wallet, enabling anyone to participate in the global economy and empowering individuals in underbanked regions.

Traditional cross-border payments are often slow, expensive and riddled with intermediaries but stablecoins offer a faster and more cost-effective alternative. As the below graph demonstrates, the average sending $200 in remittances through traditional payments systems to emerging markets, whether Asia, South America or Africa, costs at least $8 and sometimes reaches $14. 

Stablecoins facilitate near-instant transactions across borders with minimal fees which is particularly valuable for remittances, where workers sending money back to their families often lose a significant portion of their earnings to fees. Stablecoins streamline this process and ensure that a higher share of the funds sent reach their intended recipients. 

Stablecoins are not just a digital representation of money but are programmable assets that can be integrated into smart contracts. These self-executing contracts enable automated transport and trustless financial agreements. Stablecoins can be used to provide loans and the programmability opens up a world of possibilities for creating innovative financial products and services.  

Stablecoins represent a transformative step in the evolution of money by combining the stability of fiat currencies with the accessibility and innovation of blockchain technology, addressing many of the shortcomings of traditional financial systems. As adoption continues to grow and regulatory frameworks evolve, stablecoins are set to redefine how value is exchanged, stored or utilised globally, making them a key cornerstone of the future of money.

Sovereign Money Reimagined with CBDCs

Central Bank Digital Currencies (CBDCs) represent the evolution of sovereign currency into the new  Nodigital age. Unlike cryptocurrencies, CBDCs are issued and backed by national central banks, combining the pace of digital transactions with the stability and trust of traditional fiat currencies.

The potential benefits of CBDCs are far-reaching. They could enhance monetary policy implementation through programmable features, improve financial inclusion by providing digital accounts to all citizens and reduce the costs associated with cash handling and distribution. CBDCs could also enable quicker cross-border payments through interoperability protocols between different national digital currencies.

However, CBDCs also raise important issues such as privacy, financial surveillance and the role of commercial banks in a digital currency ecosystem. The challenge lies in balancing these concerns with the benefits of increased capability and control.

Balancing Innovation and Trust in Tomorrow’s Financial System

The future of money is shaped by three converging forces: the need for easier global transactions, the emergence of programmable financial instruments and the evolution of traditional currencies into digital forms. This transformation promises to make financial services more accessible and innovative than ever before.

The invisible nature of future money, existing primarily as digital code rather than physical currency, will require new frameworks for trust, regulation and financial inclusion. Those who understand and adapt to these changes will be best positioned to thrive in this new financial landscape where technology not only facilitates transactions but fundamentally rewrites the rules of how money works.