TheMarketForIdeas

In the modern era, money and payment systems have been characterized by the use of official currency (banknotes and coins, cash), issued by the central bank, as well as private currency (scriptures, account money), created by commercial banks by establishing demand deposits and issuing credit cards and other financial instruments. Payment systems that have emerged recently – such as, for example, Alipay, WeChat, Venmo or PayPal – are based on a new financial technology (fintech), but are still linked to bank deposits and credit cards. As a result, these new systems constitute an evolution, not a revolution, as bitcoin supporters claim.

As for bitcoin and other similar electronic assets, they are not currency, because they do not fulfil its defining functions (medium of exchange, means of measuring value and means of reserve). It is true that the Republic of El Salvador has gone so far as to declare bitcoin as a legal tender, but only a small portion of transactions for goods and services in this country are carried out using this instrument. The Trump administration has also created a strategic reserve in bitcoin, and several institutional investors have included this electronic asset in their portfolios. As a result, some commentators believe that bitcoin will eventually become a reserve asset, but this remains to be seen.

One of the major transformations currently taking place in the financial sector is the rapid development and spread of new technologies. The confluence of “finance” and “technology” is often called fintech, a term that designates companies or innovations that use new information technologies to improve or innovate in the field of financial services. Fintech developments are taking place in all components of the financial sector, including in the field of payments and financial infrastructure, in the consumer and SME sector, lending, insurance of goods and people, investment management, financing of high-risk companies, etc.

One of the fintech technologies is that of distributed ledger technology (DLT), which is a new and rapidly evolving approach to recording and sharing information across multiple databases (“ledgers”). This technology allows transactions and data to be recorded, shared and synchronized across a network that connects different network participants. DLT creates, in addition to various electronic assets, all of which are volatile assets that can be used for speculative activities, three other possibilities: central bank digital currencies (CBDCs), stablecoins, and tokenized deposits.

Regarding CBDCs, there have been fears that they will reduce the role of commercial banks and other credit institutions in the financial intermediation process and that they will facilitate the withdrawal of bank deposits in times of financial panic. These fears have subsided recently, as it has been understood that holdings of such currencies can be limited. In most cases, central banks will only aim to provide a secure public asset for people’s digital wallets, rather than creating an alternative to private sector-created payment systems; and in most cases, CBDCs will not be “programmable” (i.e., instructed to perform various tasks by writing and executing code, allowing for customization, flexibility, and automation) and will not be interest-bearing.

This means that solutions found by the private sector will continue to dominate payment systems. Fintech can offer other cheap, secure, and efficient techniques that do not necessarily rely on DLT; and some countries already offer modern payment systems (payment rails) for banks and corporations, which facilitate the cheap and immediate settlement of transactions for goods and services. And even in the field of DLT, cryptocurrencies whose value is strictly linked to a certain asset class (stablecoins) and which bring income (flatcoins), can lead to the creation of new forms of currency or quasi-currency, easily convertible into a type of electronic currency susceptible to fulfilling the function of a means of payment.

The state’s stance on CBDCs varies from country to country. In the US, the Trump administration’s ideological opposition to CBDCs has led to a preference for stablecoins, which has quickly led to a warning from the Bank for International Settlements that the US monetary system risks a return to the chaos of 19th-century free banking, but in electronic form. In Europe, concerns about the risks of stablecoins – such as the emergence of a nefarious nexus between the state treasury and stablecoin issuers, or inadequate anti-money laundering and know-your-customer practices – have led to a preference for CBDCs and tokenized deposits, which are digital representations of traditional bank deposits. And in China, aversion to potentially uncontrollable stablecoins has led the government to favour CBDCs and various fintech payment methods.

Ideally, all of these solutions can coexist and play a role in a well-organized electronic currency system. Thus, CBDC would be the secure public asset in people’s electronic wallets, which would create trust in the entire system. Stablecoins would be used for commercial, domestic or international payments, and tokenized deposits would be used in interbank payments.

So far, the only country that seems to have recognized the importance of implementing this “pyramid” of electronic currencies is the United Arab Emirates, which has created a very welcoming legislative environment for existing digital assets globally.

In this context, it should be noted that although new forms of electronic currency are based on a variant of DLT, most of them operate through centralized ledgers and require prior authorization by authorized and trusted auditors, rather than consisting of unapproved and unsecured transfer operations. In other words, these forms are closer to traditional centralized ledgers than to a DLT-type technology.

However, many operators, tokenizing real-world assets (RWA), seem to be opting for DLT as a “unifying platform”, denominated in various electronic currencies. Thus, in addition to the competition for dominance of domestic or cross-border payment systems, a geopolitics of electronic currencies has emerged, given their potential capacity to serve as global reserve assets.

Thus, it is clear that the Chinese state aims to give a greater global role to its currency (the yuan, renminbi), among other things, to reduce the risk of financial sanctions from the US. As a result, China is pushing for its own CBDC (e-CNY) to be used in cross-border transactions between countries involved in the Belt and Road Initiative (BRI), as well as in the complementary project to build a global digital infrastructure: the Digital Silk Road (DSR). Through the Multiple CBDC Bridge (mBridge) technology, originally conceived together with the Bank for International Settlements, e-CNY could be used to avoid payments in dollars and bypass the current international SWIFT (Society for Worldwide Interbank Financial Telecommunications) scriptural payment system; in fact, China already has its own alternative to SWIFT: the Cross-border Interbank Payment System (CIPS).

These developments suggest that the eurozone could be caught between the still dominant US dollar (whose international role could even be strengthened by the widespread adoption of dollar-linked stablecoins) and the increasingly global e-CNY. As a result, the Economic and Monetary Union is taking rapid steps towards the introduction of an electronic euro, which could help maintain the single currency’s role as a global reserve asset and could ensure a certain “strategic autonomy” for the European Union.

As for Romania, this country will not be able to benefit from this prospect, as it has repeatedly postponed its adoption of the euro and has recently even fallen far short of meeting the necessary criteria for this purpose. However, as stated in the opening speech of the annual Central and Eastern European Payments Forum, 2025 edition, delivered by the Deputy Governor of the National Bank of Romania, Cosmin Marinescu: “Romania has made significant progress in improving its payment infrastructure. Instant payments are increasingly part of everyday life. Moreover, public-private cooperation, such as the RoPay project, has demonstrated that we can deliver practical innovations that bring benefits to users. But we also face persistent challenges: ensuring digital inclusion for all citizens, strengthening cybersecurity and resilience, and maintaining trust in an era of rapid change.”

As mentioned, the Trump administration is promoting stablecoins (through the recent Genius Act) to maintain the dominant role of the dollar in international payments and as a global reserve currency. As stablecoins pegged to the US dollar effectively “redollarize” the global economy, China and the eurozone are reconsidering their previous sceptical stance and preparing to issue their own stablecoins.

In conclusion, the future of money and payment systems is born of evolution, not a radical electronic revolution. Network effects offer current systems numerous advantages. More than a decade and a half since the launch of bitcoin, the main advance in electronic currencies is the emergence of stablecoins, which are simply digital versions of fiat currency; and even the adoption of stablecoins will be gradual.

Money is a public good and of great importance for national security. As a result, it cannot be left exclusively to private, anonymous, and uncontrolled actors. In one way or another, money will remain within the sphere of action of the state, as it has been since the appearance of the first coins in the 8th-7th centuries BC.

Photo source: PxHere.com.