The Future of money is digital, but is it Bitcoin?

The Change Officer
22 min readMay 14, 2021

The idea that much of today’s cash use will shift to digital tokens is not outlandish. But will it be a private cryptocurrency?

Think about it: governments will want to retain control of what circulates as money in their economies.

By the end of the current decade, the e-wallet on our smartphones could resemble a multicurrency account. But instead of dealing with commercial banks, you may be a customer of Central banks.

CBDC — Central bank digital currency, is a new type of currency that governments around the world are experimenting with.

Where will the future of money lead us, we asked a leader of digital finance — Ronit Ghose, Global Sector Head for Banks Research, Co-Head of the FinTech Group at Citi!

Vuk Zlatarov: You’ve been with Citi for 24 years. So I can’t think of a better person to talk about the topics of CBDC, crypto, implications, opportunities and what the future holds. So let’s start from CBDCs or Central bank digital currencies. What exactly are central bank digital currencies?

Ronit Ghose: We could start with what is money. So money has existed as long as human society by 5,000 years. So not far from modern era Babylonian times. And there’s always a concept of money with society, but it’s a made up idea. And that’s the first thing that we need to remember. It’s a fiction, it’s a story. Now in our day-to-day lives, we don’t think about it like that. In today life, money is money. I can go and buy something with it. I can save it so I can buy something with it in the future, which is what saving is — deferred consumption. We just don’t think about what it is, but actually money has value because we, as a kind of community, said it’s got value. So right at the start, money was precious metals like gold coins. And then around the great Khans, the Mongols they decided that actually carrying gold coins, big lumps of metal when you’re like on your host back, trading or otherwise rampaging wasn’t very practical. So they were like, you know, you take your gold, put it somewhere and we’ll give you a note. And that says, I owe you money. And the money, the value is sitting in a store somewhere. And that’s how bank notes began, literally like an IOU. And if I see it’s my word, if I say there’s value in this piece of paper, there’s that. And that’s what Fiat currency is. And it’s a revolutionary idea because the piece of paper has value. And you’re like, what’s the value of that? But the great Khan back then said it’s valuable. And because he ran everything, if you didn’t accept that piece of paper, he would kill you. Very simple.

Money has value because society gives it value and there’s force behind it.

Central banks arrive on the scene much more recently. In most of the world’s central banks, like in the US the biggest central bank in the world, in fact it was a less than a hundred years old. The Americans tried after independence to have a central bank, they had one for a while. It didn’t last because the Americans loved the idea of, it’s a big country and they love the idea of decentralization. And one of the key things we’ll talk about is this concept of centralization versus decentralization. So if you are living in 19th century America, you know, there was a dollar, but depending on where you were in the US, you’d have a different dollar note. If you went from one side of the US to the other side, you’d have to keep exchanging your dollar notes. It was messy. And when the federal reserve arrived, it was like, no, this is the dollar note, the central bank. It’s uniform across all of the US and as the US became this global power, that money then began to be used everywhere in the world. People use the dollar or the Euro as their currency because, you know, the local currency is not valuable. Central bank digital currency in the 21st century version is actually a digital version of that bank load, simple as that. So, I don’t know if you have any money in your wallet. Do you have a wallet?

Vuk Zlatarov: Actually, very rarely I’m bringing my wallet with me. Maybe I have it today. But usually I’m on my phone.

Ronit Ghose: Today, you don’t have your wallet because we just use Apple Pay or PayPal or whatever, it’s on our phone, right? But it’s not the same. What’s on our phone isn’t the same as this. The idea of a Central bank digital currency is that on my phone will be a digital version of that bank. And that’s what CBDC is, the digital version of that bank note. Today what you have is the ability to pay. So you can go to the shop, wave your phone, and you’ve paid because the message goes back to your bank that says, can I pay? And the bank goes, yeah, Vuk’s got money. And then the merchant accepts the payment. There is actually not money in your phone or in your smart device, like there’s money in your wallet. So the Central bank digital currency is going to be basically a digital version of electronic version of that bank note. And it sounds really simple, but it’s only possible today because technology exists in a way that it didn’t exist 20, 25 years ago. You need tokenization and it’s a technology that’s been working. I mean, the idea conceptually, is much older, it’s only in the last 10, 12 years is actually working in the wild.

So that’s a little bit of a history of money, but also how we get to central bank digital currencies. It hasn’t happened yet. The Chinese and a few of the countries at The Bahamas are doing it in pilots, the Chinese are doing at a scale. And crypto is becoming so popular. It’s on the agenda for everybody. Should we have a CBDC, because governments and central banks don’t like the idea of private companies. Having a private company issue money, let’s say on Facebook, takes us back to the 19th century idea where there wasn’t uniform money.

Photo by Jp Valery on Unsplash

Vuk Zlatarov: Is that what you’re referring is decentralization or not?

Ronit Ghose: It’s partly that, but actually full decentralization would be crypto. Central bank Digital currency is tokenization, but it’s not decentralization. Because the value of that currency, like the value of the bank note in my wallet is set centrally by the central bank. The purchasing power will obviously change over time, but it’s a centralized database. It comes from a central authority. The value comes from basically society giving value in a site assessed to the central bank or the political, the government institution in the country. You have the right to issue money. You have the right to have a monopoly of force.

Vuk Zlatarov: So basically what happened from decentralization, we went to centralization and then over the previous 10 years, we started decentralizing again. And we’ll be talking more later about crypto. Basically CBDC are central banks efforts to centralize again the flow of value and assets.

Ronit Ghose: A lot of people for idealistic or political reasons like the idea of actually, why should there be central power? Why can’t we, you know, why can’t I decide what type of money I want to hold. Because if you take the extreme, you can end up with a very complex situation, I do not like your money. That’s what used to happen. As you traveled across the US in the 19th century, if you started at East Coast and you havebank notes, a dollar bill from an East Coast bank, and you went to a hundred miles or a hundred kilometers, and you go to another territory and there was another bank, you have to swap your old note for the new note. And by the time you’ve crossed the country, that note you have may not be accepted.

Vuk Zlatarov: And that is happening even today on a smaller scale, but there is still, you know, a fact that you need to change currencies if you’re traveling to some countries that are not accepting dollars, or you don’t want to swipe your card because the fees are too high. So apparently, indefinitely CBDC has a concept, or bringing that transection efficiency if we call it like that. So when we talk about the appetite of policy makers and regulators who are looking at CBDC’s now, how big is their appetite and what needs to happen?People naturally feel for anything that they can’t really understand, they feel a bit of — I’m not really sure about this. So how are policy makers and regulators approaching this now?

Ronit Ghose: So if you went back five years ago, policymakers generally were not thinking about CBDCs. It was like an academic discussion. There was probably one major exception which was China, where from about 2014 onwards, they’ve been in quite a lot of work on the topic, but generally five years, seven years ago, it was not on the discussion table.

If you go back to 2019, that’s when you see a lot of central banks beginning to talk publicly in speeches and articles, and 2019 was significant, not only were a lot of central banks talking about it, it was the first year when more central bank commentary was positive than negative. So in 2018 and 2017 central banks, generally, they spoke publicly about CBDC say, we don’t need it, what’s the point. No one’s asking for it. And even today, one of the biggest questions I get from people is— why do I need it? You don’t have any paper money on you and you’re living fine, right? But you know, generally, most people are not in developed countries. Most people are not screaming for a new payment tool, but there is this view that, you know, before this thing came along… were we screaming for it, but now we’re all addicted to it, right? We’re all addicted to our phones. But before we were not. And so there’s one school of thought, which is — wait till it happens, and then consumers will realize the benefit. But the reason the central banks began to get interested in 2019 was Facebook announced in 2019 that they wanted to have their own stable coin, originally called Libra, and now renamed, Diem. So Diem isn’t just a Facebook idea.

Diem means date in Latin. So, there’s an association — it’s based in Geneva, there is lots of companies in it, payment companies and venture capital firms… But really the original idea is by Facebook. And when they announced, and they were not the only ones, but they probably had the biggest impact — and they announced, we’re thinking of having our own currency,. It created a lot of concern among central banks. We were like, whoa, that’s our job. Our job is to issue money management. It’s not your job. And it was interesting at the same time, so Facebook announces Diem, the same year at a tipping point when more central banks started saying, go to do something. So the concern the authorities had was, well, the two private companies that basically monopolize or has a duopoly that they kind of control payments. It’s a good thing from a policy perspective, if you’re an investor, a shareholder in the company. But if you’re looking at it from the regulators perspective, you’re like, what if there’s a problem with one of the companies? Or what if actually you have, I can say typically among the older generation, what if they don’t have the app? These are two private companies. Maybe they should be a neutral or a state option. And so I think call it inclusion or concernm, basically a state option that wasn’t a private sector option, that I think drove the Chinese authorities. And there are some technological benefits as well. You know, payments can be a little bit more efficient. There are some potential technological benefits as well. I think it’s really the technology exists, but it was really sort of this political and competitive angle that pushed central banks into going, no we need to take this more seriously. And so where we are today is in China and the last 12, 18 months have been in trials. So, you know, real people in real cities, half a dozen cities have been using it’s called DCP, Chinese CBDC it’s called DCP. And yeah, lots and lots of people are using it now.

Vuk Zlatarov: So we are now at that stage. This started way back I think — Sweden was the first country that tried out something. And then Bahamas, you mentioned, and now China, China is leading the way. What’s in between having CBDCs across the globe, widely accepted and used?

Ronit Ghose: So CBDCs, are like the digital version of the bank note in your wallet. So yeah, it’s like a physical wallet with physical bank notes in the future, I’ll have digital wallet with digital bank notes. If I’m in the UK or in India, will I use the bank notes from The Bahamas or from China? No. Maybe if I’m buying something from The Bahamas or China and the seller says the other way around, maybe I’m selling something to The Bahamas or China. The seller, the buyer says, I’ll buy it from you, but I’m going to pay you in my currency. Today you normally pay in dollars. Not always, but often it is dollars, or you basically do a currency exchange. In the future, the Chinese tourists will come, and they’ll pay with the DCP wallet. It could be one of the existing wallets that the payment company will keep in the banks. And then like today, the money will again be sent back to China, to settle or they could hold it here. The merchant could say, I’ll hold it here. You know, just like in the old years my wallet would be full of bank notes from all over the world sitting there not adding any value. But it could be a spread of the CBDCs, but the bigger use case will be because there’s this potential for CBDCs to be used cross border. This idea of — we could have a space race or a cold war between currencies.

Ronit Ghose and Vuk Zlatarov in The Change Officer studio in Dubai

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Vuk Zlatarov: That’s what you mentioned in our introduction chat, about the potential. Are we looking at the, you know, repeating of the cold war between US and Russia now in a modern age about CBDCs? What happens in this game? Like if China creates the most stable CBDC or is the first one, what are the benefits and consequences of something like that — implications for the world?

Ronit Ghose: So CBDC is just a digital format. The underlying value of that asset is still driven by the digital format by making it easier to use. But just because something is easier to use doesn’t mean you’re going to use it. It helps, but there’s got to be an underlying reason as well. So for sure, the fact that the Chinese are sort of ahead, the Chinese authorities create some tension rivalry. It means people will say, why are we not doing it? Why are they doing it? We should think about doing it. Or maybe it’s like, we should partner. So there’ll be, you know, potentially competition or collaboration. And so I don’t think it’s like a cold war. It’s more like a space race. It’s a technology thing — because Europeans and Americans will say, no, no, no, we don’t know if this is going to necessarily work across our whole society that everyone wants to CBDC like the iPhone. What if they do? And if they do, another country basically has this five-year advantage, that could become a potential problem. But it doesn’t mean just because the technology is better that everyone’s going to adapt it.

Vuk Zlatarov: It’s kind of a healthy competition as well.

Ronit Ghose: By talking about this, it’s a reminder of when I said at the start of this conversation that, money isn’t this abstract idea, money is, it’s a social idea. It’s just that 5,000 years ago earlier, we basically had tokens that were shells or fragments of precious metals. Whereas today the token is digital. So that’s it basically. Now those tokens people use for games like children’s games.

Vuk Zlatarov: I think you’re putting a lot of clarity on what CBDCs are, probably a lot of people are mixing this with some other concepts, but it seems like CBDCs are here to stay. What’s your estimates in how many years CBDCs will be widely accepted, at least in the developed countries around the world?

Ronit Ghose: So I think on a three to five-year view, many countries in the world by size of population will have CBDCs. I say by size of population, because obviously China only has a CBDC or is in trial in pilot, not academic trial in real life trial and China as well, 1.3 billion people or something. So the biggest country in the world by population is going to have a CBDC. But definitely this quarter, ECB we’ll make an announcement, and the ECB will likely say we’re going to work on the CBDC, they’ve already said that we need to study this idea. They had a white paper last year, consultation document, they’ve had all the consultation back. So I think it could be, yeah, it could be an imminent. I think it’s in the next few months, the Eurozone ECB will say, we’re going to do pilot testing, the technology testing. Sweden has been working in this for a long time, but I don’t know for whatever reason they haven’t really got to beyond pilot stage yet. And then probably later in the US we’ll say, ECB are now doing a pilot.

Vuk Zlatarov: And then they’re going to turn on their engines and go for it. And I’m curious to understand what are the implications of this or the banks you know, cheques, cash, cards. How are the banks business models going to be affected? What should they keep an eye on?

Ronit Ghose: So what’ll happen is, you know, I didn’t know where you were before you came to Dubai. In Serbia. So before I moved here, I was in the UK and I can’t remember using my checkbook that often. Was it the same for you?

Vuk Zlatarov: I remember my mom using that at the times of hyperinflation and she was writing like 7, 10 checks to get like in supermarket, that is the only like my memory of cheques.

Ronit Ghose: So in the UK, you don’t use cheques. And the US there’s still a lot of use of cheques. In the UK we don’t use cheques. Like I said, in China, pay with your digital wallet. So the form factors of how we do money and payments are already changing, like in Sweden or lots of Northern European countries, no one uses a cheque.

CBDC is just part of this bigger story, which is — the format of money is going to go digital.

It’s going to go digital in the UAE. It’s already digital in Sweden. But there’ll be many digital formats. So the key message I’m saying in this conversation with you is that it’s not like CBDC is going to win or crypto is going to win. It’s that the whole science of digital money and technology… the total addressable market — the TAM for digital money is going to expand and it’s going to expand significantly. And so what will happen in 5 or 10 years’ time is when we’re in the shop and here in Dubai, you know, we might pay without our phones. And it could be that we’re paying through a wallet, like an Apple Pay or a Samsung Pay or whatever, and it could be that I’ve got my credit card linked to it, or it could be another type of wallet that I have on my phone. So, you know, it’s not going to be like one format that’s going to just win. It’s not like when it comes to videos, right. Betamax lost and VHS won. You saw that in videos, oftentimes one format where it’s not just because it’s technologically superior, but the format is digital in general. There’s not going to be a monopoly of one type of digital money.

Photo by Pierre Borthiry on Unsplash

Vuk Zlatarov: All right. Okay. So I think that we brought a nice clarity now on CBDC and everyone who listened up until this point of the episode has a good understanding of what CBDCs are. Now, if we bring into perspective cryptocurrencies that are on a roller coaster ride for the previous couple of years — it was just recently announced that the market cap of cryptocurrencies is like $2 trillion. And now if we compare CBDCs to cryptocurrencies, can you unpack that for us?

Ronit Ghose: So there’s some similarities. And then there’s some very big differences. The similarity is that both are digital tokens. They are basically strings of code that technologically are tokenized. But the technology is very different. CBDCs will generally be on a centralized database. It might be on a blockchain, but it’s probably a centralized database. Bitcoin is 55%, 60% of that $2 trillion value. Today’s, it’s the biggest and most well-known crypto. Bitcoin, and all other cryptos are not centralized and not in a centralized database, they’re there on the blockchain.

So what is the blockchain? The blockchain is simply a decentralized network of databases of computers, and that’s very different. So they both can be tokenized. So that is a similarity — they’re both digital, but one centralized, very likely the CBDC at one is definitely not centralized. And one of the reasons, people, particularly early adopters of crypto, were drawn and attracted to Bitcoin is that in very decentralization, they don’t want the central bank or government. It’s about governments in general, centralized power. They don’t like the idea of centralized power. And the value of a Bitcoin or crypto is the value of that network. Bitcoin has value because Bitcoin’s now been around for 12 years, more than 12 years. This has been proven over time that it works. Ironically, it’s been proven, and it works, but not in the way that the original founders of Bitcoin wanted it to. The original idea was that it was a decentralized, it was decentralized cash. It was decentralized way to pay the decentralized payments network. So I could move money person to person. I have money. I will send it to you. I can send it to you, but there doesn’t need to be a bank involved, a commercial bank or a central bank, I can send you value, digital value, through the internet, through the blockchain. Bitcoin today isn’t really used for 3payments. There are some examples, but they’re like the edge case. They’re like the exception that proves the rule.

Vuk Zlatarov: Lately we saw a lot of examples of people purchasing NFTs with crypto, right?

Ronit Ghose: Exactly. But it is like buying one asset. It is not P2P payment, it’s like buying an asset. So where it’s used for payments is in countries where the existing payment system, particularly cross border doesn’t work. So if you have friends in Africa, in Nigeria, a lot of young people in particular use Bitcoin because it’s not easy to move money from Lagos or more likely from the US to Nigeria. And, you know, you’re sitting in LA or New York and you want to send money back to your family in Lagos, it’s going to take a long time and it’s going to be expensive. And they found that using Bitcoin as a transfer of value in a settlement mechanism is quicker and cheaper. Now, if you’re sitting in Dubai and you want to move money to London, you don’t usually need Bitcoin. You can do that through the banking system, and it moves fast. So there are some extreme examples and they’re quite big, you know, there’s a lot of people who need to move money in and out of Nigeria or other countries like that. And so there’s some examples of the use of Bitcoin for payments. Generally the reason people own Bitcoin, as an investment. In that sense, Bitcoin is part of that family of sort of speculative assets or not speculative, maybe risky, higher risk assets. That’s obviously, you know, in five years’ time, it may be less risky, but today it’s risky. And by risky, I don’t mean that I’m not making a moral judgment. I’m just talking about volatility as it moves up and down a lot.

Vuk Zlatarov: And say that I’m a crypto investor, are CBDCs something that I should look at? Are they effecting crypto and the value of crypto long-term or these are completely two separate tracks?

Ronit Ghose: I think it’s part of the broader family. It’s like, some people will just want to watch action movies. And some people who just want to watch romantic comedies, some people want to watch them both. You got two different types of movies, you got three different types of digital money of digital assets. So there’ll be some people who like the idea of Bitcoin for decentralization. And they will definitely not like CBDCs. It’s a cultural, social phenomenon. It’s all like, because I like Bitcoin, I’m going to like CBDCs.

Vuk Zlatarov: How are banks looking at crypto?

Ronit Ghose: How long do we have? The short answer is that there’s two competing things that banks are looking at. One is, why does a bank exist? Because there’s a client that needs something done. The client will want, client wants to keep an asset safe. But there’s a safekeeping aspect of bank. People want to move money, it has a payment aspect of it. People that borrow money. And if a client needs something financially, a financial institution will think, okay, how can I meet that need? So if there are lots of clients saying, I want to own crypto, or I want to invest in crypto or trade crypto, or send crypto. Actually it should be like, okay, there’s a client need. And me as a service provider for that, I have to think, can I meet that need? So that’s one, one side.

Photo by Floriane Vita on Unsplash

The other side is the bank is in a way about safekeeping. A safety keeping is like a core part of being a classic or a commercial bank. And that means you tend to be on the cautious side, on the conservative with a small seat, because someone gives you money to look after — you’re going to build a culture about safekeeping, and when you get any new thing, you’re going to look at that new thing and go: is it legal? Is it allowed? For example, where we’re sitting here in the UAE naturally a lot of banks have looked at and go in the last five years, is it even legal? We don’t know. Call the central bank, call your regulator. You have a discussion. And part of the reason why banks can be quite frustrating for people in the Bitcoin industry or innovators or people on the edge of any new development, a new technology is that the banks initial reaction is going to be, what is this? And that’s not because they intrinsically, inherently dislike crypto. It’s just that it’s new and it needs to be regulated.

Now we’re in a situation in 2021 where it’s becoming so widespread. And you said, value is $2 trillion now, particularly amongst millennials or a younger demographic in their twenties or early thirties, there’s also a lot of discussion as an should crypto be part of my kind of asset universe. So there’s a broader sort of change in society. Cultural change and regulators are much more knowledgeable and educated. Many regulators are very aware of the pros and cons of different crypto. And so you’re seeing now in the US more banks being willing to engage with crypto, and you probably see that in the rest of the world as well. And so 2021 is kind of interesting to pinpoint because crypto has been like a lot of new innovation. It’s come from the retail consumer side, it’s come from ordinary people, and then the institutions catch up. And 2021 is interesting because crypto is slowly moving from being more consumer retail to more and more institutional, like family offices are more and more involved. The big family offices are like institutions. And so it’s a very interesting year.

We’re in this big transition process to the institutionalization of crypto.

Vuk Zlatarov: It is interesting. Over the previous 24 years you’ve been in Citi and then even before that in this industry — probably these last couple of years were most intense, especially research-wise. There’s so many things going on at the same time, it must be interesting. So UAE, we are living in a very progressive country, innovative with agendas that are very forward thinking. What’s their place in this whole game of the future of money?

Ronit Ghose: If I look over the next five years, the UAE could be really well positioned to become a hub or a center for digital money. Be it crypto or otherwise. Why’d I say that? Well, if you’re interested in forward-looking in a future technologies, why wouldn’t you be interested in the future of money? You know, it’s not just about drones or flying cars or whatever. If you’re interested in blockchain, well, here’s a very concrete, specific use case. And so that kind of forward-looking and other centers have it as you know, the UAE has long sort of looked at Singapore as forward looking center. Singapore has been one of the jurisdictions that’s been quite forward-looking on digital assets. There’s not been a lot of crypto activity here. There are some crypto wallet companies, which you’ll be familiar with. I met a few of the founders. In the last 12, 15 months, it’s obviously been a very challenging time for people around the world, but the UAE has generally been seen to have done quite well. And when people around the world think about, where am I going to set up a business? If you have policymakers and regulators that are forward thinking, thinking about the future, and you have a city that is functioning well, and that is open to new ideas, new people. You know, whether it’s Dubai or Abu Dhabi or the whole of the UAE — it could become a really interesting center because often when you have a big country, usually just by definition, there’ll be like, Oh, I’ve got a very big economy. I don’t need to think about necessarily new ideas or I have an existing interests that I want to defend. I’m sure that exists everywhere.

Vuk Zlatarov: Big company or small company? Big company or a startup?

Ronit Ghose: Exactly. It’s exactly like that. I mean, I mean the UAE is like a 50 year startup.

Vuk Zlatarov: Compared to some other countries around the world, with lot longer history, this has been a ride, these 50 years, I’ve been here for seven. I’ve experienced part of it, what they managed to do in the last 30 years is unbelievable.

Ronit Ghose: Yeah. And the digital money world, in a way fits the UAE because it’s forward-looking, it’s full of people who are like — everything is digital and they are mobile, and the UAE attracts mobile people. It should be a good fit, but it’s not, I don’t want to be too negative now, having said all the positive things, but it’s obviously not guaranteed. It’s an option. It’s not guaranteed that the UAE will be successful.

Vuk Zlatarov: Chances are high.

Ronit Ghose: It’s an opportunity. And I think, yeah, from my conversations with entrepreneurs and policymakers in Dubai and Abu Dhabi, I think it’s something that people want to explore. It’s going to be real interesting.

Photo by Belinda Fewings on Unsplash

If you want to learn more about this topic, read this Future Of Money GPS report on Crypto, CBDCs and 21st Century Cash, written by Ronit Ghose, Judy Zhang, Kaiwan Master, Ronak Shah, and Yafei Tian from Citi.

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