Unleashing Programmable Money: The Impact of KPMG's Insights

Introduction

This blog explores the potential impact of programmable money, as discussed at the #FII7 Day 1, powered by KPMG. Dive into the future of money, evolving cryptocurrencies, regulatory challenges, and more.

The Future of Programmable Money

• The panelists discussed the future of money, particularly programmable money and its potential impact on the financial industry, trade corridors, and global economy.

• They highlighted the prediction that digital assets, central bank digital currencies, and tokenization of financial products will become mainstream within the next three years, impacting trade corridors globally.

• The speakers emphasized the role of technology, such as smart contracts and fast databases, in enabling tokenization of real-world assets, and clarified that the focus is on enabling creative economy and not just speculation.

• The challenges of promoting and proliferating high-quality stable assets and creating consistent product systems and policies to enable a new way of money working were also discussed.

• The session aimed to address misunderstandings about programmable money and provide a clear definition, focusing on digital assets, stable coins, and tokenization of real-world assets.

Evolution of Cryptocurrencies and Central Bank Digital Currencies

• The concept of cryptocurrencies and speculation has evolved into thought leadership on how to make technology more usable for the average consumer, particularly in the realm of money.

• There is a rapid evolution from stable coins to tokenized deposits and Central Bank digital currencies (CBDCs), with 98% of central banks researching and running pilot projects on how to deploy them.

• This evolution is significant as it is reshaping the way we understand and use money, with 11 countries already using CBDCs and many more considering their implementation.

• The key learning point from the past few years is the importance of having a real asset underpinning digital money to avoid it being considered ‘a waste of time’ or ‘fraud’.

• The market is evolving in terms of use cases for digital assets, such as in the field of invoice financing, and there is a growing divide between decentralized finance (DeFi) and centralized finance.

The Changing Perspective on Cryptocurrencies

• The speaker, a former proponent of Bitcoin, has lost faith in cryptocurrencies and sees them primarily as speculative assets, lacking significant productive capacity.

• They emphasize the valuable role of education in the cryptocurrency space, highlighting the importance of headlines and news in educating the public about the risks involved.

• The idea of a universal currency, like stable coins, is seen as revolutionary, especially for remittances, where stable coins help maintain the stability of local currency and reduce fees.

• Regulation is deemed essential due to the emergence of a parallel financial services industry built around cryptocurrencies and stable coins, with an emphasis on regulating both the investors and the individuals behind financial services firms.

Challenges in Regulatory Regimes and Innovation

• Regulatory regimes in different countries grant specific rights based on experience or exams taken. This applies to the crypto space as well. Education and regulation are crucial before discussing topics like stable coins or digital money to ensure safety and mitigate risks.

• Balancing innovation with stability and security in the financial system is a perennial challenge. Understanding the products, licensing regime, and supervision are essential in introducing new forms of digital money safely to prevent unforeseen risks when they become systemic.

• The world’s complex nature has been highlighted, with the banking system failing to accommodate the majority of people, leading to a wealth gap. The opportunity to create a new financial system in regions with fewer legacy systems, like the Middle East, is seen as a way to incorporate financially disadvantaged individuals.

• The disruption caused by technology, particularly the proliferation of blockchain and its impact on the banking system, is emphasized. The challenges of innovating in the financial space and the patchwork of regulations across different countries are acknowledged.

• Opportunities for innovation in wholesale banking are identified, particularly in improving interbank liquidity and trade finance through tokenization and central bank digital currencies. The potential to create efficiency and improve supply chain capabilities is recognized.

• The panelists express excitement about tokenization, stable coins, and decentralized finance (defi), viewing them as transformative and revolutionary in traditional finance. The need for collaboration and innovation to navigate the evolving financial landscape is highlighted.

The Excitement and Concerns of Programmable Money and AI

• The discussion revolves around the excitement and concerns related to programmable money, AI, and blockchain technology.

• The concept of programmable money is explained as utilizing if-then statements to create automatic transactions without the need for paperwork, but the challenge lies in validating real-world events through Oracles.

• There is a focus on the potential of programable money, including retail use cases such as government vouchers for social security and commercial discounts, as well as more significant applications in global supply chains, real estate, and investment banking.

• The involvement of governments in regulating programmable money raises concerns, especially regarding the unstable regulations and KYC (know your customer) requirements for users of stable coins.

• Another area of interest is the tokenization of physical assets such as foreshores, mangroves, and traditional forests to create viable capital assets that can be traded and contribute to environmental protection.

Conclusion

The insights from the #FII7 Day 1 panel shed light on the future of programmable money, the evolving landscape of cryptocurrencies, and the regulatory challenges ahead. As we anticipate the mainstream adoption of digital assets and tokenization, the impact on global economies becomes more evident.

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