The Dawn of Digital Currency
A quarter of a century ago, a window into the money of the future opened in Disney World’s twin town in England, Swindon. Yes, Swindon.
Last week saw the Silver Jubilee of the launch of the world’s first central bank digital currency (CBDC), Mondex, in my home town of Swindon. I sure a great many people have never heard of it, but it is important to remember what was an important milestone on the road to digital money worldwide.
A quarter of a century ago in Swindon, and in Guelph and in Exeter and in Manhattan and in Hong Kong and in Sydney, consumers were able to send digital fiat currency from one to another without going through a network.
Amazing, and worth celebrating, but not for reasons of pure nostalgia. The lessons learned from Mondex are so valuable and when we add them to the learnings from the last quarter of a century of (debit-centric) mass market payment evolution, at the dawn of the switch from contactless to contact-free payments with the mobile phone at the heart of transactions, I think that we can design a digital Sterling that is not only a genuine cash replacement but a narrative for Britain going forwards, a projection of our values in a vehicle of genuine benefit at home and abroad.
Given this very special Jubilee, my Consult Hyperion colleagues brought together some old friends from that exciting time to reminisce about the project and, more importantly, to pass on some of the key lessons learned from the world’s first live CBDC to the coming generation of central bankers, businesses, regulators and payment providers who will soon be delivering population-scale CBDC around the world.
I was fortunate enough to be asked to chair this 25th anniversary panel which was made up from:
- Tim Jones CBE (the co-inventor of Mondex).
- Gillian Keegan MP, Minister for Apprenticeships and Skills at the Department for Education.
- Neil McEvoy, CEO of Consult Hyperion.
- Debbie Gamble, Head of Innovation at Interac.
- Mike Keegan, CEO of Fujitsu UK.
Why was I so keen to bring them together now? Well, look East, where the first reports have appeared concerning the Digital Currency/Electronic Payment (DC/EP) system being tested in four cities: Shenzen, Chengdu, Suzhou and Xiong’an. DC/EP is the Chinese CBDC. The implementation follows a “two tier” approach that I explore in my book The Currency Cold War, with the digital currency being delivered to customers via commercial banks. The Deputy Governor of the People’s Bank of China, Fan Yifei, recently gave an interview to Central Banking magazine in which he expanded on this approach to central bank digital currency (CBDC). His main points were that this approach, in which the central bank controls the digital currency but it is the commercial banks that distribute it, is that is allow “more effective exploitation of existing business resources, human resources and technologies” and that “a two-tier model could also boost the public’s acceptance of a CBDC”.
He went on to say that the circulation of the digital Yuan should be “based on ‘loosely coupled account links’ so that transactional reliance on accounts could be significantly reduced”. What he means by this is that the currency can be transferred wallet-to-wallet without going through bank accounts.
Why? Well, so that the electronic cash “could attain a similar function of currency to cash… The public could use it directly for various purchases, and it would prove conducive to the yuan’s circulation”.
How will this work? Well, you could have the central bank provide commercial banks with some sort of cryptographic doodah that would allow them swap electronic money for digital currency under the control of the central bank. Wait a moment, that reminds me of something because… yep, that’s how Mondex worked.
Taking my guests back from Shenzen to Swindon, to those days when Mike was head of Mondex, Tim was in charge of NatWest Bank, Gillian was globetrotting to find the technology, Neil was designing the secure electronic cash and Debbie was piloting the scheme in North America, I asked them to draw on their experiences to help those people planning the new generation of CBDCs (and ended with my usual desperate plea for a digital Sterling!).
I took away three main points from their discussion: a group of banks who could not agree are not the best vehicle for bringing new scale products into the market, vertical rather than horizontal market entry would have worked better (that is, make it work in all branches of Boots, not all the shops in Swindon) and it was a mistake to compete with the existing payments cards rather than looking at the niches (car parking came up more than once!) where cards did not work and cash was massively inconvenient. Well, these were my takeaways,anyway. I encourage you can watch the web chat for yourself online here at Consult Hyperion, of course, and draw your own.