The future is digital but fraud, volatility could cripple crypto, says Allianz Trade executive
IN BRIEF
- For the average person, I am hard pressed to find one use case where these cryptocurrencies provide what is not already handled by existing payment methods. While crypto offers fast and cheap transaction rates, the benefits do not outweigh the risks.
- It’s hard for me to rationalize a world where the U.S. dollar is not central to trade finance. While I am not an expert on geopolitics, I can see a future where the world is operating with multiple reserve currencies tied to political and trade alliances.
- Fraud and instability are my biggest fears. Moving towards digital currencies, and indeed digital identities, has the potential to make the world a much more insecure place, leaving us increasingly vulnerable to identify theft and fraud.
Aaron Lindstrom is the Americas region Head of Transformation and Digital Partnerships for Allianz Trade, and he sits down with Joe Kornik, VISION by Protiviti’s Editor-in-Chief, to discuss the end of cash, digital payments, the danger of crypto currencies, the future of the U.S. dollar and what he thinks will be the world’s most valuable asset in 2050.
Kornik: Everyone seems to be talking about the end of cash and the emergence of cashless societies. So, let’s start there: When do you see cash going away and what are the potential implications—positive and negative—of that development?
Lindstrom: I have heard a great deal of talk on this subject, and I believe that, specifically in the B2B space, we are already there. I’m not aware of any corporation which would hand its employees briefcases of cash to execute purchases. Paper checks are still the most common form of payment in B2B transactions, followed by bank-to-bank (ACH) payments, wire transfers, and credit cards. To many in the trade finance space, “cash” is in reference to payment on or before delivery by one of the above methods.
The pre-payment requirement of many cross-border trades limits supply inputs and creates a cash flow gap downstream. We are seeing a surge in financial institutions and fintechs trying to deploy solutions to provide liquidity and credit at the time of transaction. The rise of embedded finance solutions using technology to provide net payment terms or liquidity at the time of transaction is probably the most positive outcome of these efforts. On the downside, new technology and payment methods come with a degree of risk. Technological dependencies, fraud concerns and market acceptance by both buyers and sellers could all hinder the development and deployment of these programs.
Kornik: The rise of digital currencies will be one of the biggest financial developments over the next decade. Walk me through how you see that playing out—from cryptocurrencies to central bank digital currencies to stablecoins? What could we expect that landscape to look like in 2030 and beyond?
Lindstrom: I think there is a lot of talk about it and most of it is really just marketing. Depending on the data you read, between 50% and 85% of Americans are using some form of “digital payment” today. This could include touchless payment with your debit/credit cards from your mobile device or services like Zelle or Venmo. Again, we are well on our way to a cashless society in both the B2B and B2C spaces. I would argue that the dollar, euro, yuan, and many other currencies are already digital first.
Stablecoins are really just trying to take this to the next level while making money on small changes in the value of the currencies they are tied to. The past few years we have seen several of these algorithmically controlled coins suffer due to improper collateralization and fluctuations of other digital assets. The volatility of these programs shows there is a long way to go before they are going to be considered as a mainstream payment method.
Volatility is also a huge issue for crypto. Looking at Bitcoin as an example, Forbes talks about cryptocurrency’s volatile history. Granted, if you bought and held during the first 10 or so years, you made a ton of money. But since then, there have been as many great days as there have been horrible ones, and it is not uncommon to see the value rise or fall by 10% or more in a day. That type of fluctuation can destroy a company’s profit margin. It would be very difficult to manage a consistent profit margin unless your entire supply chain was operating on Bitcoin, and even then, swings in value could leave manufacturers and distributors in a losing position.
we are well on our way to a cashless society in both the B2B and B2C spaces. I would argue that the dollar, euro, yuan, and many other currencies are already digital first.
Kornik: So, it sounds like you have lots of red flags when it comes to crypto.
Lindstrom: Look, the key to trade currencies is consistency, and crypto just isn’t there yet. While many feel confident that crypto can become a dominant force in trade, I think there are several barriers to its success. In addition to volatility, security remains a concern. Chainalysis estimates that in 2022 alone, $3.8 billion was stolen in crypto hacks. While credit cards and mainstream banking see their share of fraud, there are protections and insurance available for corporates and individuals with mainstream payment methods. Many of these are legislative in nature, and that is the other big challenge to crypto. Crypto is not tied to or protected by the actions of a sovereign government. While many tout that as a selling feature or benefit, it does not provide businesses or consumers the confidence needed to make it a mainstay of commerce.
For the average person, I am hard pressed to find one use case where these cryptocurrencies provide what is not already handled by existing payment methods. While crypto certainly offers fast and cheap transaction rates, the benefits do not outweigh the risks, in my opinion. When you layer on financial regulations around sanctions and KYC processes, I do not see crypto becoming a major force in global finance.
Kornik: Do you see a future where the U.S. dollar is no longer the world’s reserve currency? And what could potentially take its place?
Lindstrom: The U.S. economy is still the largest economy in the world and continues to be a net importer. Our consumption and economic strength make us the world’s reserve currency. Nothing is forever, but it is hard for me to rationalize a world where the U.S. dollar is not central to trade finance. While I am not an expert on geopolitics, I can see a future where the world is operating with multiple reserve currencies tied to political and trade alliances.
Kornik: What worries you most about a digital currency future? And conversely, what excites you about it?
Lindstrom: Fraud and instability are my biggest fears. Moving towards digital currencies, and indeed digital identities, has the potential to make the world a much more insecure place, leaving us increasingly vulnerable to identify theft and fraud. Perhaps the most exciting thing to me is the access to data and speed of transactions that digital currency could provide. Given the time it can take funds to clear with current systems—it often takes days—the amount of money tied into these processes must be huge. Freeing that liquidity through digital currency could be a huge boost to businesses of all sizes.
Kornik: Finally, if I ask you to predict far into the future, say 2035, 2040 or even 2050, what’s different? What does that financial future look like? Any bold predictions?
Lindstrom: It has been 90 years since the U.S. departed from the Gold Standard and 50 since Richard Nixon finally ended the last vestiges of a hard currency backed by gold. As I mentioned earlier, I believe that most major currencies are digital in nature already. Bitcoin and other cryptocurrencies take the concept of fiat money to a whole new level. You asked for a bold prediction so here’s one: If I had to make a prediction of what the future of money looks like in 2050, I would say it will be transacted digitally but likely backed by water. I can see a world in which currency, digital or otherwise, is benchmarked to fresh water as the planet’s most valuable asset.
Crypto is not tied to or protected by the actions of a sovereign government. While many tout that as a selling feature or benefit, it does not provide businesses or consumers the confidence needed to make it a mainstay of commerce.
