De-Dollarization is assisted suicide; Tokenized bank deposits are coming; Paytech's lucky 7 are rising; No trust, no innovation

SPECIAL: Britcoin explained: the Digital Pound is a design masterpiece!

1. De-dollarization is assisted suicide

2. Bank deposit tokens are coming

3. SPECIAL: Britcoin explained: the Digital Pound is a design masterpiece!

4. Lack of digital trust is killing innovation

5. The rise of paytech’s lucky 7

Artwork: Guernica, Picasso, 1937. One of his best-known works, regarded by many art critics as the most moving and powerful anti-war painting in history. Why this art work? It seemed to capture the tumult of the battle over paytech, de-dollarization, trust, and of course CBDCs. It’s a war, and while I am optimistic for payment’s future, I have no illusions that it will be easy. Too dark? Maybe but the battle for payments has just begun.

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1. De-dollarization is assisted suicide

The Decline of the Dollar, Suicide with Assistance. Including help from Nordstream?

Great read on de-dollarization that asks a very BIG question:

“Can the slow decrease of the USD position, including through the use of crypto assets [cbdc], benefit EU companies threatened by the US secondary economic sanctions?”

The assumption of EU-US marching in perpetual lockstep is flawed. Today’s astounding accusations from Pulitzer-winner Seymour Hersh that the US blew up the NordStream pipeline make questioning that assumption essential!

Link to Seymour Hersh’s article here on substack:

"How America Took Out The Nord Stream Pipeline"

The authors, Astrid Viaud and Paul-Arthur Luzu have a great opening line:

“The de-dollarization of the world, as a reserve currency,...is a recurring issue that, sooner or later, will prove the point of the economic doomsayers.”

The authors rightly focus on sanctions:

• "The threat [of dedollarization] might come from the money itself which, through out-of-control economic sanctions policy and crypto-assets development by State actors, might have launched a slow suicide with assistance.”

• "US sanctions have risen by 933% between 2000 and 2021 before the RU invasion."

• “This out-of-control sanctions policy led to a massive bulk, turned economically viable, of sanctioned entities."

Sanctions, Crypto and CBDC

I agree that sanctions are behind de-dollarization and that sanction "impacted" nations now are a "viable bulk." BRICS and RCEP nations developing CBDCs show that it isn’t just sanctioned nations pushing de-dollarization but all those impacted.

I disagree that crypto can play a significant role. Crypto use in Ukraine, Iran, and Russia shows that volumes are too small to save any of them or impact the USD. The US arrest of a crypto exchange head for Russia money laundering also shows the US is watching. It also shows just how “pseudo” pseudonymous is in crypto, where transfers can be tracked if the government wants to.

The authors are correct that CBDC is a game changer, and I expect the BRICS CBDCs to come into play this year or next. They are game changers.

Still, will the digital euro benefit EU companies? Not now, but it is certainly insurance for the future.

I am sure many readers will still say, "it can't happen, the EU and US are joined at the hip."

It already has. The EU defied Trump by using INSTEX transfers, not SWIFT, to send humanitarian pandemic aid to Iran in 2020.

Clearly, EU and US interests can diverge. Never take that for granted.

Nordstream may be proof.

Thoughts?

Takeaways:

• De-dollarization is very much a self-inflicted wound but is short of suicide.

• Disaffected sanction "impacted" nations have “economically viable bulk” they will not tolerate being ignored.

• Crypto will play a minor role in de-dollarization; liquidity is still far too low.

• CBDC is the game-changer for the USD; watch carefully!

• The digital euro is the EU's insurance policy.

2. Bank deposit tokens are coming

Bank Issued DEPOSIT TOKENS, as blockchain comes to banking and payments!

Great read from Oliver Wyman and Onyx by JPMorgan on how banks will use blockchain to tokenize deposits, a great idea with a few caveats!

What are they? “Deposit tokens (DTs) refer to transferable tokens issued on a blockchain by a licensed depository institution which evidence a deposit claim against the issuer.”

DTs offer banks a way of digitizing payments that provides them with easier integration into their existing systems than CBDC or stablecoins.

Let's look at how they fit in our trilogy of fiat digital payments, in order of risk from low to high:

1️⃣ CBDCs:

With CBDC we have essentially zero risk as we’re dealing with gov’t backed money, this makes them the lowest risk of the three options to hold.

2️⃣ Blockchain-based DTs:

Here we have licensed banks with full liquidity, risk management and other cash management systems. This puts their risk as higher than CBDCs but lower than the stablecoins— that we have now.

3️⃣Stablecoins:

Unsurprisingly the report shows no love for stablecoins. Banks hate them!

The report argues that, for myriad reasons, they represent a greater risk than DTs. I would have to agree as stablecoins stand today. The problem is that if stablecoins are regulated as "narrow banks," as the US may propose, the risk gap will narrow.

So what are the CAVEATS?

Banks won't stop with wholesale payments and will attempt to push DTs out on the retail market. For retail use, I believe that DTs represent an inferior solution to CBDCs and Stablecoins as they maintain banks' lock on your money.

Both stablecoins and CBDCs give users greater control of their money. If we learned anything from crypto, it’s that most want to take back control from banks.

DTs also open the door for banks to collect fees at will, and it will likely be impossible for smaller banks to provide this technically sophisticated service.

Can you imagine big banks using DTs to cut out smaller institutions? I can. That is why I support national CBDCs where payment is a “public good” available to all!

I like DTs, I think that they solve real problems for banks and that banks should press on with their development.

Programmability, blockchain, atomic transfer, and easier integration into bank systems make DTs a winner!

Takeaways:

• Deposit tokens are GREAT wholesale transfer technology!

• They give banks a way to join in the digital currency revolution and give blockchain a major boost.

• The problem is that when used in retail payments won’t give you greater payment autonomy.

• Unlike retail CBDCs, they do nothing for inclusion.

3. SPECIAL: Britcoin explained: the Digital Pound is a design masterpiece!

“Britcoin,” the official moniker for the “digital pound” central bank digital currency (CBDC), is coming! And it is a real masterpiece!

This “SPECIAL EDITION” is available here on substack: here

I do a thorough review of Britcoin and show why its not just good but great! I would encourage anyone interested in CBDCs to read their documents they are simply the best ever!

Enjoying this article and want to say thanks? The best way is to subscribe and share this on Twitter with my tag @richardturrin

4. Lack of digital trust is killing innovation

Don’t blame digital innovation for snowballing societal distrust!

The ITIF makes the blockbuster claim that growing societal distrust is driving digital trust to new lows, not the other way around, and that distrust is hindering innovation.

This is one of the more insightful papers I’ve read in a while. Let’s face it between the Twitter files, data hacks, crypto crashes, and fake news, our digital world has a long way to go in the trust department.

The ITIF, however, flips the digital trust debate and makes a compelling argument. How do we rate the impact of digital events on trust when we compare them to broader societal distrust generated by a recent long laundry list of horrors? False claims of WMDs, pedophile scandals, OxyContin scandals, Afghanistan, and $31 tn in gov’t debt?

Chicken or the egg?

This is a “Which came first, the chicken or the egg?” problem. The ITIF makes the case that societal distrust caused by an “erosion of institutional trust” created much greater distrust than anything from the digital world.

Sadly I think that the ITIF is right. I see it daily with CBDCs, where many who distrust CBDCs rely on arguments that rely less on digital tech than the fear of the institutions issuing them. This distrust is slowing necessary innovation.

Still, the ITIF, funded by big tech, did a poor job of acknowledging that digital essentially pours gasoline on the existing fire of social trust, forcing it to burn hotter and faster.

Declining trust hinders innovation

The ITIF makes the case that declining societal trust will limit the US’s ability to innovate in digital technologies. I think they’re right, as I show with CBDCs.

In China, I personally see how the population’s trust and enthusiasm for new digital products are greater than in the US. While “enthusiasm” is hard to quantify, one example is that Chinese mobile phone users lead the world in the number of apps on their phones. This is even more surprising given that China has superapps, and many individual apps aren’t needed!

WeChat and Alipay succeeded not just because they solved payment problems but because they launched into a trusting and eager population. I don’t see that eagerness in the US and EU, where digital advances are looked at suspiciously.

"The problem is that the US's declining national trust presents a direct challenge to its future technology leadership."

The ITIF is right. Innovation requires not just innovators but people who trust using the innovation! As long as trust remains low, innovation will suffer. This will be a major drag on American innovation for years to come.

Takeaways:

• We blame digital for many societal problems, but digital just mirrors society.

• The distrust of digital tech hinders innovation.

• Digital amplifies existing societal problems.

• All is not lost! ChatGPT just became the world’s fastest-growing consumer app!

• Ironically, ChatGPT's answers are not trusted!

5. The rise of paytech’s lucky 7

Seven forces shaping the rise of PayTech

Payments face a nuclear-sized disruption, and EY values the PayTech sector at $2.2tn!

Never forget why we need PayTech! The US and EU are paying 2.3% and 1.4% of their total GDP in payment costs! We desperately need modernization.

EY does a great job, but as usual, I disagree in a few places:

1️⃣ Open Banking

“It’s about time!.” Most of us are locked into our banks, and open banking is a game changer by giving us control of our data. The process is going slow because banks prefer having you locked in! That's why we need RTP.

2️⃣ Real-time Payments (RTP)

EY sees RTP following open banking, I disagree and see it driving open banking. RTP is the key tech that will bust open bank monopolies. How we get it done is immaterial, but we need it yesterday. Why? Currently, payments are a DRAG on GDP, while RTP brought an additional 1.12% to GDP in the UK and Thailand! (Same in China.)

3️⃣ Cross-border Payments

Clearly, this is where CBDCs shine, but other RTP networks can also achieve lower costs, as seen in ASEAN. We can and should hard-wire networks together for now, but only CBDCs are going to provide that futuristic global solution we deserve.

4️⃣ BNPL

I’m not a big fan of BNPL, and the collapse of BNPL provider OpenPay in Australia today in a deteriorating credit market is significant. Compared to big data-based loans like Alipay's, BNPL seems not just low-tech but a scam designed to trick people into missing payments.

5️⃣ Digital Wallets and Super Apps

I love them both, but you aren’t going to get anything super without RTP. Sure, card “pass-through” wallets, like Apple or Google, are great, but card fees mean they aren’t ever going to be “super.”

6️⃣ Embedded Payments

So the best the West can do is embed a BNPL provider into e-commerce? BUNK! CBDCs will bring universal embedded payments based on national digital payment networks. Payments will simply be everywhere as it is in China now with WeChat, Alipay, and soon e-CNY.

7️⃣ CBDCs

I love them and think that they are the ultimate manifestation of PayTech. They will also disrupt many of the business models for PayTech companies. If your paytech depends on squeezing margins, there's nothing to squeeze when payments are free.

Takeaways:

• PayTech is a game changer, but we haven’t seen anything yet!

• Free national CBDC networks are the ultimate PayTech.

• RTP, like FedNow or SEPA, is the first step and will force banks to change.

• BNPL is low-tech and, with big data underwriting around the corner, is set for a fall.

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Rich Turrin is the international best-selling author of "Cashless - China's Digital Currency Revolution" and "Innovation Lab Excellence." He is number 4 on Onalytica's prestigious Top 50 Fintech Influencer list and an award-winning executive previously heading fintech teams at IBM following a twenty-year career in investment banking. Living in Shanghai for the last decade, Rich experienced China going cashless first-hand. Rich is an independent consultant whose views on China's astounding fintech developments are widely sought by international media and private clients.

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