By Paul Raftery
CEO, Projects RH, Sydney.
March, 2022
Change is ever present in our world and for hundreds of years we have been striving to increase efficiency and productivity. Electronic coin money and Web 3.0 our just next steps we must deal with.
Whether it be the establishment of the Tulip markets in the Netherlands in the 1600s, or the four first joint-stock companies in China and Europe, the world has sought smarter ways to do things.
This week saw the ANZ Bank settle a USD $30 million transaction using a bank issued coin.[1] This digital coin was traded, and the transaction settled and complete within 10 minutes. This week saw a number of calls from Projects RH clients asking, “how can I reduce my international transaction costs?”.
“May you live in interesting times”, was once a popular curse attributed to China, but today it is truly the case that technology has changed the very way we live. Mark Hodgson, a management consultant and trainer based in Sydney, said at the outbreak of the lockdowns associated with Covid 19 that we had seen five years management change in a matter of a few weeks. Mark was clearly referring to the acceptance and embracing of technology. His own seminars increased as Zoom events and even I was forced to accept that the daily paper needed to be online.[2]
Financial disintermediation has long been a critical part of improving economic efficiency. What is happening now is that trade between countries and currencies is becoming almost instantaneous. This will significantly decrease the risk and therefore the cost of disintermediation. When swaps were first introduced in the currency market to parties exchanged revenue streams and quickly this emerged to stretch as standardised contracts with financial institutions taking a slice for their services. Today as we engage consultants around the world to do small pieces of work, I continue to be surprised that a small transfer costs AUD 10 and I am paying 300 points for the privilege of buying US dollars so that they can sell those US dollars, also at a significant cost, to receive their local currency. Sometimes these payments take more than three days. This time can see significant currency movements, for example the AUD has moved 4% in a week.
Clearly the future will be, I send AUD coin and they swap it for a local coin at low cost.
The era of blockchain
Smart contracts, blockchain, digital currencies and web 3.0 with us now and not something we should be dreaming about. It is with us now.[3] Our clients of Projects RH are well aware of this and are seeking to embrace it.
Why Now
Global markets have embraced this medium of exchange and provided new cost-effective methods for disintermediation. The less Australian institutions become involved we run the risk of being irrelevant in a global forum.
The second major reason is that the friction costs associated with using coins such as Ethereum have fallen dramatically. In short, the crypto currency market has matured Ethereum 2.0 seen to be best in class. It has now won supporters such as the former ASIC chairman Greg Medcraft who is a director of the Digital Finance Centre for Research and Co-Operation. [4]
DAO – is it taxable
A decentralised autonomous organisation (DAO) is a collective. There is some technical argument over whether it is taxable or not. An answer will be found, and one would expect it would be treated like a trust. The matter is solvable even if we need some legislation.
Australia needs a central bank digital currency (CBDC) and the logical party to provide this is the RBA and not each of the large private banks. Why is this critical? Because it will cut foreign currency payment costs.[5] Australia needs this to be globally competitive.
Carpe Diem
We must learn to love and embrace the changes that we are seeing; the digitalisation of money and the evolution of the Internet to what is being called both the metaverse and Web 3.0 are truly just the next step in our wonderful journey. The clients of Projects RH do have many reasons to have concern at this time, varying from the lack of availability of containers for international trade to fluctuations in commodity and currency prices. For our clients, and ourselves too, we see developments in the disintermediation, blockchain and the Internet as exciting, risk reducing and cost saving. Somewhat ask why we see as risk reducing and the answer lies the contracts will be settled in minutes not days.
The sun will rise in the morning, and we will meet the new digital challenge.
[1] Eyers, J.; ANZ leads way with first Aussie dollar stablecoin – Financial Review, 3/24/2022. https://todayspaper.smedia.com.au/afr/PrintArticle.aspx?doc=AFR%2F2022%2F03%2F24&entity=ar01300&mode=text
[2] See : Eyers, J.; and Sier, J.; Digital services act to embrace crypto frontier – Financial Review, 3/21/2022 https://todayspaper.smedia.com.au/afr/PrintArticle.aspx?doc=AFR%2F2022%2F03%2F21&entity=ar01503&mode=text
[3] Eyers, J.; and Sier, J.; Ethereum co-founder: ‘It’s early days in a paradigm shift’ – Financial Review, 3/22/2022. https://todayspaper.smedia.com.au/afr/PrintArticle.aspx?doc=AFR%2F2022%2F03%2F22&entity=ar01302&mode=text
[4] Boyd, T.; Ethereum winning blockchain race – Financial Review, 3/23/2022. https://todayspaper.smedia.com.au/afr/PrintArticle.aspx?doc=AFR%2F2022%2F03%2F23&entity=ar04801&mode=text
[5] Eyers, J.; Digital cash may cut foreign payment costs – Financial Review, 3/23/2022. https://todayspaper.smedia.com.au/afr/PrintArticle.aspx?doc=AFR%2F2022%2F03%2F23&entity=ar01703&mode=text
