Potential for development of digital payments, stablecoins in Asia
Over the last thirty years, Asia has been transforming itself rapidly. The pace and adoption of robotic, automation, science and digital technology within the Asian economies were amazing and none has shown any signs of slowing down yet. Today, it is the leading economic growth region within the global trade and cross-border payment ecosystem.
With 4.7b people or 60% of the world’s population living in the Asia continent, Asia is a young and vibrant region. Domestic and regional trades flourished, massive jobs created, standard of living elevated, poverty bench-marked reduced, minimum wage level increased and many more. It is the right time to embrace a varied but holistic payment technology across consumer and corporate financial services.
In the digital world, physical cash transactions pose many domestic and international challenges. Among them, money laundering, corruption with commercial and senior officials. Cash was the darling for these organized crime activities. If that wasn’t enough, counter terrorist funding were flagged towards Asian crime gangs. At the end of the day, processing of physical cash just does not make sense when digital payment technology could easily arrest the issue. The result was a unanimous call by Asian leaders to digitize payments, go cashless and reduce cash printing & payments.
If we rewind the scene, Asia was merely a net importer of Financial Payment technology until the mid-2005. From there onward, ambitions, ideas and dreams were conceived. Partnerships were forged to grow payment technology in both domestic and cross border markets.
In 2006, the ASEAN Payment Network (APN) were conceived through the ASEAN Finance Ministers’ meeting in Cambodia. It was later changed to the Asian Payment Network with a core ambition to switch and integrate electronic and digital payments within Asia’s national domestic processors (NDPs). The Asian financial crisis of 1997 was a bitter lesson and it has banded Asian regulators with the urgency to cooperate and be on the lookout for one another.
Integrating Asian payment is a tall order despite a simple intention. Some NDPs were merged, equity divided to be owned by local banks or the respective central banks. New payment guidelines were drawn and mandates were passed. Certain nationalistic sentiments were hardened but getting the right technology platform to address disparate regulatory requirements remain the most challenging task to appease all the Asian members.
The arrival of Blockchain technology into Asia was estimated to be around 2012, three years after the Bitcoin was launched. All these despite the fact that Blockchain technology was first outlined in 1991 by Stuart Haber and W. Scott Stornetta.
Fast forward to 2021, with the onset of Blockchain 2.0, the Asian financial regulators are beginning to realize that digital currency may not necessarily be all bad. If it is controlled and managed at both the issuing and receiving rails, it has a real chance to integrate Asian economies without being compromised as a speculative tool in similar fashion where certain western issued cryptocurrencies have been controlled or exploited for individual monetary gains.
Development Asia digital currencies: Bitcoin, Ethereum, Litecoin, Diem
The trials began back in 2019 where the Central Bank Digital Currency (CBDC) was mooted to address domestic consumption in lieu of physical fiat currency. There were two schools of thought for issuance of CBDCs. First, there were CBDCs for wholesale and another set of CBDC for the retail sector. The second school of thought was for a hybrid CBDC meant for both retail and wholesale transactions. In both scenarios, there was no right or wrong approach. After all, CBDCs are meant for domestic transactions where regulators are adamant to contain the issuing and receiving rails. CBDCs will be the first choice for domestic users instead of taking a capitalism approach of outlawing domestic outflow of funds for speculative investment onto other digital currencies such as Bitcoin, Ethereum, Litecoin, Diem, etc.
Pan-Asian Stablecoin (PAS) challenge USD or opposite
The next and most interesting stage is to call for the issuance of a Pan-Asian stablecoin. There has never been a better time than now where the global Covid-19 pandemic has amplified the need for swift collaboration within each region to facilitate crucial necessities and financial settlements.
For simplicity geared towards exploratory analysis of this topic, we shall call it PAS for Pan-Asian Stablecoin. Now, if the PAS is a stablecoin and the basic fundamental of being a stablecoin is that its value can be pegged to a few core values unique to Asia.
PAS can be pegged to Gold, or precious metals, minerals unique and in abundance in Asia. Or it can be pegged to the monthly trade volume or value of Asia’s top 15 leading economies. The point here is uniformity and it should not be a defined bucket of fiat currency collateralization. Unlike other digital and electronic payments which relies on fiat currency for currency conversion and settlement, the PAS will allow Asian economies to finally integrate by addressing the following:
- Decouple the reliance on USD as the dominant trade currency amongst Asian countries
- Make easier and faster cross border payments and settlement across the region with NDPs acting as inbound and outbound gateways
- Protect local domestic CBDCs from speculative investment and fluctuations
- Eliminate cross border currency conversion for high volume trading companies in the region
- Prevent fiat currency speculation that will lead to possible currency fluctuation risk
- Reduce handling fees and make process more transparent with Blockchain technology
- As a settlement model for the Asian Regional Comprehensive Economic Partnership program
- Allow Asian conglomerates to buy and pay using PAS for their supply chain management will certainly release more FX liquidity for greater growth or R&D.
- Ensuring other trading region subscribe to the PAS for cross border transactions
- International payment scheme which reportedly utilizes the USDC may find it more lucrative to adopt PAS for its operation in Asian countries.
- Allows the floatation of the PAS be guided and controlled by each respective NDPs.
- NDPs will be a crucial gateway to address inbound and outbound payment compliance and respective regulatory mandates.
The United States Securities Exchange & Commission (SEC) has defined an enviable foundation for the growth and adoption of cryptocurrencies or digital assets. This itself is hard to prove that the application of PAS is simply massive and the value for continued economic growth alone outstrips various challenges pose by having an interoperable domestic real-time payments among Asian Payment network members.
Is it right direction then for connect blockchain and Fintech?
If the PAS is indeed the right way for Asian economies to go, the ultimate challenge would be the million dollar question; i.e.; “Which Blockchain technology payment platform should Asia choose”? The traditional card payment technology players are all up in arms, experimenting with various digital assets and Distributed Ledger Technology (DLT) providers. Facebook hasn’t given up either. It has launched Diem as its stablecoin and re-branding Novi as its digital wallet with the keenest ambition to grow its high net worth user base. Facebook may potentially see some success in Asia if it plays it card right because rightfully Asia has a huge Facebook user base.
Is it the right direction then for Asian countries to collaborate with Fintechs and payment card technology players to jointly issue the Asian stablecoin? After all, these players have a large user base and long relationship with banks in the region? Fundamentally, this is definitely possible but technically, it defeats the whole purpose of having an Asian owned, operate and issued stablecoin. What is important though is the rail of which PAS activities adopt. Still, let us not discount the card payment technology providers. They have a mandate to survive and a global reputation to protect. They may come through one way or another if they find the right recipe to convince the Asian regulators.
Blockchain technology is not entirely rocket science, even though its inception has been presided by mostly highly intelligent mutants. Over the years, there are many good Blockchain platform rolling into the market and almost all are open sourced. As a precaution, there are quite a few that stretched the marketing truth and most often it comes back to a proprietary use. We shall not waste time with these proprietary Blockchain payment distractions as in my opinion, they will ultimately die a natural death when Quantum computing takes off.
Nonetheless, some of the more desirable Blockchain platforms with ISO 27001 certification for trusted security management and multi-party settlement are deemed most suitable for the issuance of PAS stablecoin. They are robust, digital asset agnostic and can easily scale above 35,000 TPS (transaction per second, and it isn’t a typo because Asia needs that throughput benchmark) with near real-time settlement without having to re-architect their core process architecture:
- Nexus by Quantoz
- Roxe by Appifiny
The era of Blockchain technology as being an ideal financial payment rail is no longer a question or a contention. However, the dawn of a new breed of digital currencies owned by public and domestic administration are just the beginning of the future of payments in Asia. We can wait and see, or we can embark on the adventure of innovation, emulating the fair practices of the US-SEC and drive greater inclusive collaboration across the Asian Banking Financial Services Industry.
Conclusively, a few key Asian economies are waking up to the challenge; that we can do better and faster without having to look to the west for payment services. Instead, it is about time Asia unify and solidify our payment technology as its identity of coming of age.