A digital synthetic hegemonic currency answers the call for a new international payment network.
“The relatively high costs of domestic and cross border electronic payments are encouraging innovation, with new entrants applying new technologies to offer lower cost, more convenient retail payment services.”
Note. Quote from Mark Carney, Governor of Bank of England, Speech at the 2019 Jack Hole Economic Symposium.
At the 2019 Annual Jackson Hole Economic Symposium, Mark Carney the current Governor of the Bank of England articulated the need for a digital synthetic hegemonic currency to combat the dominance of the United States Dollar in the global economy. But in that speech, he noted the importance of creating a new international payment network and the need for governments to act swiftly.
Payment systems today use a central operator to communicate with banks and settle transactions on their network, and both domestic and international payment systems are not unified. For domestic payment transfers, most transactions are settled via an automated clearing house (ACH) or national payment system with the exception of a few high-value transactions that use real time gross settlement (RTGS) systems to accommodate their need to be instantly cleared. The average retail client will use the ACH payment system for credit transfers between banks and direct debit for recurring payments. While direct debit is automatic, credit transfers are not immediate.
Cross-border payments on the other hand are primarily handled by the Society for Worldwide Interbank Financial Telecommunication (SWIFT). As an interbank messaging service, the “cooperative owned by its thousands of member banks,” does not actually settle payments on their network, but instead sends the payment order to participating banks for which the account is under, and the transaction is settled by them. Despite transitioning to a new internet protocol infrastructure in 2008, SWIFTNet Phase 2, the network is still widely inefficient, and payment orders are passed from bank to bank to be validated. In turn, this increases settlement time and fees.
Although there are a multitude of private and quasi-private payment networks that exist today, in order for truly the lowest costing transactions to take place, the public sector needs to lead the effort in building infrastructure to support frictionless payment settlements around the world.