Wednesday 24 / April / 2024
Financial technology, better known as FinTech, has taken the world by storm in recent years, largely owing to its success in finding effective alternatives to traditional payment methods. Today, we are faced with the imperative of redefining traditional monetary systems as they are on their way to becoming outdated.
The global digital revolution in the financial sector is poised to reach new and unprecedented levels, as its impact starts to resonate throughout our region with the emergence of fully digital banks established at an investment of millions of dollars.
In addition, the number of financial and commercial transactions online have doubled several times over in the past five years, according to the International Monetary Fund (IMF), even while investments in regional e-commerce platforms have expanded. Amazon’s acquisition of Souq.com, and the launch of Noon.com and other regional e-commerce platforms are cases in point.
Just as with any other progressive business developments, the FinTech revolution offers its own set of challenges. This is especially relevant when it comes to cryptocurrencies that are key components of this revolution.
It is incorrect to refer to cryptocurrencies including Bitcoin as a bubble or trend. Likewise, it is wrong to consider cryptocurrencies a quick option for risk-addicted people to become rich. Over the past months we have witnessed how the volatility of cryptocurrencies and their tendency to sharp price declines can lead to huge and instant financial and investment losses.
We must understand that by considering cryptocurrencies only as a means for money laundering or financing suspicious activities, we are limiting our perception of the immense capabilities of these digital monetary tools.
In essence, these virtual currencies are not really different from conventional money or the methods adopted in the global financial system such as cheques, bank transfers or credit cards. We must remember that financial crimes were taking place prior to the arrival of Bitcoin and other similar currencies on the financial landscape. What matters is the ability of regulatory bodies to track violations rather than monitor the financing tool.
This does not necessarily mean that cryptocurrencies in their current state do not represent a risk, but rather than abandoning them altogether, we need to learn how we can utilize them to legally serve the economy.
The main criticism towards digital currencies is that they offer no security cover, have no tangible assets, and are not endorsed by central banks, most of which have warned against the risks they pose.
However, the market value of the six major cryptocurrencies in circulation amounted to US$125 billion at the beginning of 2018. According to the Bank for International Settlements, this equals nearly 2.5 per cent of the total value of money currently in circulation that amounts to US$5 trillion.
This is undoubtedly a significant percentage, considering the novelty of these currencies that date back to only 2009.
Certainly, there is a tangible and real demand for cryptocurrencies today. They fill a void that conventional methods have been unable to address, especially in light of the successive developments in blockchain technology that have led to breakthroughs in FinTech. Such breakthroughs could potentially drive a comprehensive transformation in the conventional financial system, one that is comparable to the revolution brought about by the internet since its inception in the last quarter of the 20th century.
It is best that central banks in the Arab region act quickly to keep pace with the evolving technologies. Some Arab governments have taken a step in the right direction by announcing the issuance of their own digital currencies - marking a promising start that will certainly be followed up with more sophisticated steps in the future.
The digital technology and cryptocurrency revolution is not malevolent in nature - it is a new development in our world that should be embraced to serve people and their interests.
Blockchain technology can revolutionize the finance industry by making transactions faster and safer while also providing better information about potential clients that can improve loan pricing through a deeper assessment of repayment possibilities.
Regulatory frameworks need to ensure financial integrity and consumer protection while continuing to support efficiency and innovation. Regulating the economy around revolutionary financial technologies can generate enormous benefits, and we must rush to seize the opportunity if we are to ensure a future replete with possibilities.
