Wars, weapons, and currencies — III

Mahmoud Mohieldin
Tuesday 28 Nov 2023

What is the future of the world’s currencies in the present era of armed conflict, high levels of debt, and the increasing technological sophistication of payment systems, asks Mahmoud Mohieldin



his month has seen important developments in the realm of cryptos and central bank digital currencies.

Most observers of financial and technological affairs have been engrossed by the twists and turns in the saga of the firing and then reinstatement of Sam Altman as the CEO of the US company OpenAI, an incident that raises concerns about the commercial goals of tech companies and digital platforms, especially those involved in circulating information and executing deals.

To what extent do these companies comply with the rules of sound governance? Do they do their best to protect their customers’ personal information and rights? To what extent do they stick to the rules and ethical standards for safeguarding customers’ private information and the security of society as a whole, such that they are protected from any possible breakdown in artificial intelligence (AI) that could threaten them?

A group of scientists and researchers warned of this very problem in an open letter published in March this year that called for a pause in the race to train AI systems that would be more powerful than those that currently exist until effective regulatory practices are in place.

However, UK journalist John Thornhill, who writes on tech, has observed that the competitive fever to develop precisely these types of high-risk AI systems has only increased since the idea of the pause was first mooted. This has heightened concerns over whether existing governance systems can find an appropriate balance between innovation and profitability, and the need to provide the necessary guarantees for countries’ domestic security and international security.

Both of these are more vulnerable than at any time since the end of the Cold War, or, indeed, since the end of World War II, due to the present intensification of geopolitical conflicts.

Closer to the topic at hand, which is the future of the world’s currencies in an era of warfare and debt, and the technological dimensions of currency development, I would like to refer to an article of mine that appeared in this newspaper about the crypto-crisis in 2018 and to Facebook’s attempt to launch its own crypto-currency, the Libra in 2019.

The latter project encountered resistance from regulators for reasons to do with financial and monetary stability and protecting privacy and other rights, overriding the arguments of independent digital currency developers that their products were more efficient, less costly, and more conducive to financial inclusion. In the end, the Libra was not allowed to emerge.

In an article in April 2021, I mentioned that the area that was likely to see the most development was central bank digital currencies (CBDCs). A digital version of the central bank’s regular currency would enable people to make payments and settle transactions directly by using digital wallets or similar applications without having to pass through an intermediary. I wrote at the time that “CBDCs would benefit from the advances in blockchain technology, and they would enjoy the advantages of a currency certified as legal tender by a sovereign central bank.”  

Meanwhile, cryptos such as Bitcoin continued to spread despite highly volatile price fluctuations. Dealers’ nerves were further frayed by the recent scandal that rocked the largest cryptocurrency exchange, Binance, which led to the dismissal of its CEO, Changpeng Zhao, who had once presented himself as the industry’s saviour. The Seattle Federal Court in the US, which heard the case, sentenced Zhao to a $50 million fine and Binance to a $4.3 billion fine, one of the highest ever meted out to a corporate entity.

Last week, the journalist Gillian Tett of the UK Financial Times discussed the developments in connection with the Binance settlement of which two main observations can be emphasised:

First, despite the difficulties involved, it is easier by far to trace transactions in cryptocurrencies than in cash. Despite the issuers’ promises regarding the confidentially of transactions and the privacy of users, their guarantees are crumbling in the face of advances in monitoring and tracking technologies. Second, there are holes in the legislation needed to regulate the industry to protect cryptocurrency users. As a result, regulators have been forced to marshal the limited means at their disposal to protect the markets.

A positive note regarding the development of formal markets and the issuance of CBDCs was sounded at the FinTech Festival in Singapore in mid-November. In her keynote speech at the event, IMF Managing Director Kristalina Georgieva said that “about 60 per cent of countries are exploring them [CBDCs] in some form today” and added that the success of CBDCs will depend on government policy decisions and how the private sector responds.

She stressed the need to start awareness-raising sooner rather than later concerning the financial needs of business and the general public. Such awareness is a two-way street, not, as was formerly thought, a one-way street leading from governments, regulatory agencies, and central banks. Experience, especially since the global financial crisis, has driven home the need to communicate and share information about technological developments and financial innovations and their impacts on societies and markets. This communication is more vital than even today in view of the increasing use of AI applications.

Georgieva said there was a need to introduce CBDCs to facilitate cross-border payments for trade, investment and remittances. To the extent that they are used for these purposes today, they “are at present expensive, slow, and only available to the few,” she said. The current shortcomings the world is experiencing with the use of “hard currencies” for these purposes underscore the urgency of continuing the search for alternatives.

We will continue to follow the changes technology is bringing to the world’s currencies and the way we use them. But as important as these changes are, the changing shape of the currencies does not change the underlying principles that guide economic development, which have very little to do with whether a currency consists of salt or some other commodity, is printed on paper like banknotes or stamped on metal-like coins, or is made of plastic or is even digital in form.


This article appeared in Arabic in Wednesday’s edition of Asharq Al-Awsat.

* A version of this article appears in print in the 30 November, 2023 edition of Al-Ahram Weekly

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