What to Watch in 2022
This will be a big year for central bank digital currencies but don’t expect them -all- to be warmly welcomed.
I’m not sure I like the prediction game, so rather than make predictions, I’ve opted to call this a list of things to “watch in 2022.” Some of these events are obvious, continuations of trends that are already evident to some, others may not be. The events are not in order of importance and represent things that I will be following and writing about in the coming year.
Let me say in advance that we are on “the edge of a new frontier,” China and fintech are changing at an astonishing rate. A list of a mere ten things to watch seems frightfully short. If I’ve omitted your favorite, I apologize in advance. My list should be seen as a top 10 for going “Cashless” rather than a top 10 of fintech overall.
“We stand today on the edge of a New Frontier—the frontier of the 1960s, the frontier of unknown opportunities and perils, the frontier of unfilled hopes and unfilled threats. “ John F Kennedy 1960 My choice of the term “new frontier” is meant to convey the same sense of macro-change that Kennedy saw coming.
Fintech’s past performance success is not indicative of future results! Fintech will have a wake-up call in 2022 as the tech sector faces the reality of raising interest rates. That doesn’t mean impending doom but will impact frothy valuations and make the quest for earnings even more critical. So unicorns without earnings, beware. The hype cycle is over the arduous work of building digital infrastructure without disproportionate rewards begins.
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2. China CBDC
China’s CBDC will launch in Q3 of 2022. Many will see no immediate impact on payment in or out of China and quickly declare it a failure. Reports are already circulating along these lines even though China’s CBDC is merely in trials. What analysts will miss is that China is playing a long game with the digital yuan, and they need to be thinking in a 5-10 year time frame to see the results. Thinking long term isn’t the norm for a fintech industry and analysts that expect “instant unicorns.” Meanwhile, expect the US to ban use of the e-CNY by athletes at the coming Olympics.
“Digital renminbi accepted here.” Expect the digital yuan or e-CNY to have a significant impact on US China relations this year. Will the US try to bank or block the e-CNY like it does Huawei?
3. The US Dollar
The US dollar will begin to repel digital challengers' first tentative assaults on its reign. China’s digital yuan will not be the sole challenger but one of many Asian-based CBDCs that will begin to displace the dollar’s use in trade. Focusing solely on the e-CNY is a mistake, as most of Asia is building CBDCs to benefit from financial inclusion and the reduced costs of using native currencies for cross-border trade. Look for China’s CBDC to begin building an Asian network of users, cementing its place as a regional reserve digital currency.
Will the yuan begin to challenge the dollar this year? Challenge doesn’t mean overtake or replace. Instead think of a long slow drip that takes years for a meaningful change.
DeFi is going to go mainstream as more CBDCs launch. Just like we all need to acknowledge a debt to crypto for the underlying technology behind CBDC, we will owe a similar debt with DeFi. So once more CBDCs are launched and cash tokenized, you can expect DeFi to go mainstream as well. Of course, DeFi will need to conform to KYC, AML, and other local regulations to go mainstream, but DeFi has a fundamental role to play in our digital future. This has nothing to do with whether you love or hate crypto and
Stablecoin Tether will confirm the old saying: “If it walks like a duck and quacks like a duck, it’s a duck.” Tether walks and quacks like a duck when it releases the bare minimum of investment portfolio data, performs sketchy audits, and no one can even guess where they are investing $US 80 trillion. Tether following in the footsteps of Bernie Madoff and earning its place in history as a fraud seems likely. Breaking the dollar peg will just be the start. With Tether’s 46% share of the stable coin market and 70% share of bitcoin trading activity, we should all “brace for impact.”
If it walks like a duck and quacks like a duck its a duck! Tether will confirm this is true.
“Platformification” will be the buzzword of the year in financial circles as Western financial services companies unwittingly copy China’s advances in fintech pioneered by Alipay and Ant Group. The irony is that most will be unaware that they are building on the foundations of Chinese tech and will see them as Western inventions! Results will be poor. Financial services companies are still woefully unprepared for a digital future despite the billions they claim to spend on going digital. Legacy management, not legacy technology, will be the biggest hindrance.
CBDCs and potentially stablecoins will drive the West to build its first superapps. Big tech will likely be the winner in this move. Disintermediating payment, meaning payment will no longer be tied to your bank, will break this market wide open and free big tech from many existing constraints. Big tech will be free to aggregate and embed services into lifestyle platforms not too dissimilar to the Chinese SuperApps. Western financial service companies see the tsunami coming but are culturally ill-equipped to respond.
Why no super apps in the West? China’s super apps all have integrated free payment something that is still lacking in the West. CBDC and potentially stablecoins will change this.
Digital payment, including CBDC, stablecoin, and crypto, will make fintech a legitimate player in the geopolitical game among superpowers. Sure, for these superpowers it is a pawn among many others, but the fact that it’s playing at all on the great chessboard is a feat. Just a few years ago, fintech was nothing more than a buzzword. Crypto-currency, derided as fintech’s evil spawn, was a tool for drug-runners and tax evaders that were hardly worth discussing by “reputable” financiers. Sanctions will likely bring these changes to the fore and bring the fintech discussion to the highest levels of state.
Crypto and CBDC in particular will be pawns in a greater game of gepolitical chess. This is a remarkable acheivement given how five years ago both were nothing more than a buzzwords.
ESG will become an increasingly critical component in our financial lives while coming under increasing scrutiny due to the lack of standards. For some, ESG will be “the emperor who has no clothes” due to the lack of standards. Expect these standards to be hard-fought and unsurprisingly break down into opposing camps that do not agree. Still, ignore society’s desire for long-term and ethical investing that is “beyond good” at your peril. ESG is far more than investors wanting to feel good about themselves and will incentivize many companies to change for the better.
10. Financial Inclusion
Fintech will slowly and without great fanfare continue on its highest calling of bringing financial inclusion to the underprivileged across the planet. While far less sexy than a flashy new AI-driven investment app, and out of sight to many in the developed world, bringing inclusion to the underserved is simply the most important thing fintech can do. For developing countries inclusion can bring real GDP growth, so they will be far quicker to adopt CBDCs and other digital financial services than developed nations. Watch as developing nations “leapfrog” developed in fintech, a process already underway.
I am indebted to you all for making “Cashless” a success this year. With the e-CNY in use at the Olympics expect a lot more talk about the digital yuan very soon. If you haven’t read Cashless please check it out on Amazon or on my webpage richturrin.com!