Role of Digital Currencies in Tomorrow's Financial Markets: Use Cases, Challenges and Solutions

 

 

Delivered at the Singapore FinTech Festival, the panel explored the evolving landscape of digital currencies - covering: central bank digital currencies (CBDCs), stablecoins, programmability, regulatory challenges, and diverse use cases for digital assets, including humanitarian aid and capital markets.

 

Key Highlights

Shifting Focus from Retail to Wholesale Digital Currencies

  • Several countries are reconsidering or halting their plans for retail CBDCs, and instead, prioritising wholesale solutions.

 

Stablecoins Beyond Payments

  • Chan Yam Ki, Vice President, Circle: Emphasised the versatility of stablecoins, such as USDC, as digital dollars adopted across various financial services, not limited to payments.
  • Key Use Cases: Examples included UBS’s tokenised money market fund and cross-border transactions through platforms like Toons, using USDC to enable faster transfers outside traditional banking hours.
  • Programmability: Highlighted the benefits of programmable money, such as faster, more cost-effective, and efficient settlements.

 

Humanitarian Applications

  • Carmen Hett, Corporate Treasurer, United Nations High Commissioner for Refugees (UNHCR): Discussed how digital currencies, specifically USDC, are utilised to deliver cash assistance to refugees, facilitating financial and economic inclusion.
  • Examples: Initiatives launched in Ukraine and now expanding in Latin America, where digital currencies are used to pay utility bills directly, removing the need to convert to fiat.
  • Future Potential: Envisions developing digital identities and credentials for refugees to empower them and improve their livelihoods.

 

Institutional Perspectives and Market Efficiency

  • Chong Kok Kee, Chief Executive Officer, AsiaNext: Highlighted the importance of digital currencies for facilitating 24/7 operations in capital markets.
  • Challenges: Discussed the necessity of instant settlements to manage margin requirements, especially over weekends, and stressed the value of regulated stablecoins.
  • Humphrey Valenbreder, Chief Executive Officer,Partior: Explained Partior’s role in creating infrastructure for 24/7 cross-border payments, which reduces counterparty risks.
  • Efficiency Gains: Emphasised the potential to unlock significant value by moving away from T+2 settlement models and minimising capital buffers needed for risk mitigation.

 

The Roadblocks to Widespread Adoption

  • Challenges: The panel noted the slower pace of adoption in highly developed markets, largely due to the efficiency of existing traditional systems and the significant capital investment required.
  • Examples: Markets like Brazil and India are ahead in adoption because they started from a less efficient baseline, strengthening the business case for digital currencies.

 

Overcoming Regulatory and Technical Barriers

  • Chan Yam Ki, Vice President, Circle: Stressed the need for regulatory clarity to enable broader institutional adoption. The introduction of frameworks like Europe’s MiCA has led traditional institutions to enter the digital asset space.
  • Technological Upgrades: Discussed ongoing improvements to blockchain technology, such as layer two solutions and enhanced security measures, which are crucial for addressing concerns around privacy and scalability.

 

Emergency Use Cases and Climate Risk Financing

  • Carmen Hett, Corporate Treasurer, United Nations High Commissioner for Refugees (UNHCR): Underlined the value of digital currencies in emergency situations, enabling faster and more traceable aid distribution. The programmability of digital assets allows for efficient and targeted relief efforts.
  • Real-Time Impact: Shared examples like climate risk insurance, where parametric data triggers automatic payments to farmers, illustrating the effectiveness of digital currencies in addressing real-world challenges.

 

Sustainability and Energy Concerns

  • The panel addressed concerns about the environmental impact of digital currencies.
  • Technological Efficiencies: Discussed the transition from energy-intensive proof-of-work systems to more efficient proof-of-stake mechanisms.
  • Broader Context: Positioned the energy consumption of digital currencies within the wider framework of the digital economy, noting investments in renewable energy by major tech companies.

 

Final Thoughts

  • Humphrey Valenbreder, Chief Executive Officer, Partior, concluded that, despite initial inefficiencies, the transition to digital currencies would ultimately lead to a more capital-efficient and sustainable financial system.


Speakers:

  • Carmen Hett, Corporate Treasurer, United Nations High Commissioner for Refugees (UNHCR)
  • Chan Yam Ki, Vice President, Circle
  • Chong Kok Kee, Chief Executive Officer, AsiaNext
  • Humphrey Valenbreder, Chief Executive Officer, Partior

 

Moderator:

  • Jessica Renier, Managing Director & Head of Digital Finance, Institute of International Finance (IIF)
 
 

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