If we look through ad-hoc high-IQ social media such as Quora or, to a lesser degree, Reddit, we can notice a substantial increase in topics regarding personal privacy in the contemporary world of centralized finances. Paying taxes and auditing financial transactions must remain everyone’s civil obligation, but not a matter of frivolous scrutiny by regulators, whose procedures do become more and more perplexed and bothering, resulting in bulging transactional costs and longer remittance-to-acceptance delays.
Offshore period of the global economy essentially phased down, but it symbolized everyone’s freedom of choice in what jurisdiction to select in order to create and report their own business in, as long as there is no conflict of interest, conspiracy, and/or tax avoidance. Privacy remains an indispensable value of everyone’s life and must not be compromised by any third-party players, including government institutions, except for when they possess explicit warrants for arrest.
In this respect, more and more well-pronounced global institutions such as global providers of secure financial messaging services SWIFT or money remittance mogul Western Union express open interest in partnerships with members of the blockchain world such as Ripple (XRP).
Singapore-based startup Thunes recently announced its intention to disrupt the monopoly of international banking payments by SWIFT, the world's dominant international financial network. Thunes is strikingly bold: in the past two months, the startup has received $72 million in initial venture rounds from the likes of payments giant Visa, Singapore state investment fund EDBI (Thunes was spun off from Singapore payments company TransferTo in 2019), the U.S.-based Endeavor Catalyst Fund (which has backed companies like Bukalapak and “unicorns” Carro and eFishery) and British hedge fund titan Marshall Wace. The Series C round, which closed last month, brings Thunes' total funding raised to $202 million and boosts the company's valuation to $900 million. With its proprietary money transfer infrastructure, Thunes reduces costs by up to 90% compared to SWIFT transfers and boasts of completing most transactions within 30 minutes.
Feeling the heat, SWIFT recently announced an impending major overhaul of its rapidly aging network. It believes its infrastructure needs an urgent upgrade to remain abreast with intensifying competition from blockchain companies. It also believes it can be achieved once the company can facilitate the transfer of tokenized assets across multiple public and private blockchains.
SWIFT has already conducted trial tests with more than a dozen global financial institutions, including some second-tier banks such as ANZ, Clearstream, and Bank of New York Mellon.
Tokenized assets have the potential to revolutionize the asset management and cash payments industries. However, because these assets are managed on different blockchains, presently there are certain challenges in bringing them to the global marketplace quickly.
In its turn, Western Union recently announced that it aims to incorporate Ripple's (XRP) blockchain technology and the XRP token as a part of its business strategy. In the global money transfer services sector, Western Union is a major player. It’s beyond question, that this move is a significant event for both Western Union and Ripple as they are working together to take advantage of distributed ledger technology and digital assets to improve the efficiency, cost-effectiveness, and security of cross-border money transfers.
This, arguably, also helped Ripple Labs to have the U.S. Securities and Exchanges Commission, SEC, drop its legal case against the former’s top managers. The story behind this remarkable alliance began in 2018 when Western Union, known worldwide, once again, for its extensive reach and credibility in money transfer services, established a network of over 550,000 agent locations across more than 200 countries and territories. By integrating Ripple's technology and XRP token, Western Union will be capable of providing its customers with a faster, more economical, and secure way of transferring funds and remain competitive as the #1 international money transfer service.
Modern monetary theory, also known as MMT, is a macroeconomic theory that, while being broadly adopted, strangely deviates from conventional philosophy. Its principle is that if a country has full control over a fiat currency, and is monetarily sovereign, such as the countries of the U.S., U.K., Japan, and Canada, then it is not operationally constrained by actually collected revenue when it comes to federal government spending, taxation, and borrowing.
So Modern Monetary Theory (MMT) has been an artificially created framework that challenges conventional thinking about the relationship between fiscal policy, monetary policy, and the functioning of the economy. It alleged that governments with their own sovereign currency are not revenue-constrained in the way households or firms are, and that (fiscal) deficits are not necessarily harmful, but rather a normal feature of a functioning economy. Furthermore, it argues that the role of taxation is not to fund government spending, but rather to regulate aggregate demand and discourage socially undesirable behavior.
In essence, Modern Monetary Theory proposed a new way of thinking about the role of government in the economy that challenged the traditional economic paradigm. This is due to governments’ status as the sole issuers of the currency. As their financial plans are dissimilar to those of an average household, their decisions should not be influenced by apprehensions of an escalating national debt.
As we see, MMT segregates financial rules for governments as opposed to households and individuals, making the latter more stressed about prudent budgeting. But at the end of the day, such dual treatment resulted in individuals’ and households’ growing financial hardships and discontent.
Another increasingly painful and challenging legacy of the old-school monetary system is its controversial credit-to-debt concept. According to the basic theory of credit, fiat money takes its roots as a unit of account for debt, and the creation of fiat money involves the creation of debt at the same time. Certain advocates of credit-based theories argue that it is most appropriate to view money as a type of debt, even within systems that are typically considered to use commodity money. Other theories suggest that money is equivalent to credit (rather than equivalent to value) solely in fiat monetary (money-creation and -exchange) systems, where all forms of currency, including physical cash, can be viewed as forms of credit-based money.
Nowadays, MMT more and more frequently raises the issue of so-called debt slavery. In fact, it’s not new. It takes its roots in ancient Rome, in the Middle Ages, and in the era of early capitalism, which, as we know, took over feudalism at the end of the XVIII century. Sometimes debt slavery was only the first stage of enslaving humans, and then it grew into direct slavery.
Most historians, dealing with different countries and different epochs, touch upon the issue of debt slavery in one way or another: it was everywhere and always a serious factor of social development. But for some reason, they mostly talk about debt slavery in the past tense. If we, for example, type the phrase “debt slavery” into the Internet, the “search engine” will offer you mostly materials on the topic of the former mighty empires that eventually collapsed.
Eventually, disruption of financial obligations among numerous, often increasingly financially challenged, societal groups, undermined the viability of this assumption-based economic model.
The reduction in the percentage of bank loans allocated to non-financial recipients since the 1990s, as compared to those granted for financial asset markets and real estate, has caused apprehension regarding financial stability and economic growth. This has led to a renewed interest in credit policies, instruments, and institutions. These advancements have led to significant implications on social inequality and insecurity – one of the most visible key topics raised at the annual Davos economic forums.
These days, more and more often, people around the world find themselves in a debt trap. In fact, debt itself stems from the above-mentioned modern credit model encouraging people to borrow more and more to possess all desired things and values now, because “later you would be too old to enjoy them”. The contemporary credit model worked well for as long as household incomes grew incrementally in a healthy economy. As a result, most people were comfortable and complacent about paying interest fees to banks as their own careers and incomes progressed throughout their entire active lives.
But this model apparently got broken with the 2008 world financial crisis. Back then, many people lost their jobs and faced foreclosures of their homes, while remaining obligated to pay more and more “biting” interest rates to banks, which they could hardly afford. Covid-19 exacerbated that growing income disparity drama, since redundant and locked down employees could barely earn to physically survive, let alone pay their monthly rent. Sympathetic to their prospective electorate, governments in North America and Europe decided to support pandemics-beaten households. They doubled down on the money-printing pace, issuing free checks and sending them “to whom it may concern”. This is how they ignited the years-long unabated inflation. So now it’s no longer even a question of a dominant economic model because banks could not expect their loans to get repaid from people with dwindling incomes over the course of these tumultuous years. There are simply too many economically challenged households to enforce mass repossessions, impounds, and foreclosures.
This is how the next phase – loan forgiveness – became a reality. The very combination of the words “loan” and “forgiveness” is already enough to point unequivocally to the fact that the credit model of the modern economy is totally broken.
Now let’s recall how expensive international telephony in the early 90s was when making a phone call across the Atlantic would cost a fortune, and when the practice of “collect calls” had been flourishing. That gradually evolved into contemporary (free or nearly free) VoIP calls. In the same way, our world will inevitably see free or near-free international money transfers (and there is hardly any alternative to the adoption of blockchain for that purpose). This is simply a matter of logic: people and organizations will be looking to save on payment transfer costs the way they looked to save on long-distance calls two decades ago, and the growing demand will ultimately meet the corresponding varieties of offers. Again, there’s hardly any alternative to the broad adoption of blockchain technologies for this purpose.
On top of that, people have become more conscious about raising their individual debt levels. So, on one hand, the affinity to possess valuables before affording all of them remains intact, but on the other hand, new generations – especially, generation Z – are increasingly unwilling to borrow, especially, under the current constantly rising interest rate environment. There are few options to resolve this emerging dilemma, except for offering individuals an opportunity to rapidly build and multiply their small capitals. With big disparities between borrowing and lending costs and interest rates offered by brick-and-mortar banks and other credit-issuing institutions, such a goal seems to be unreachable. In contrast, blockchain-based decentralization, which incorporates naturally occurring competition and open transparent bids for new entrants, seems to be the only solution to turn away from debt-based consumption models in favor of personal wealth-creating ones.
So, the modern debt economy is apparently facing harsh headwinds, putting the entire global banking system finds itself in limbo concerning its existential things. Banks cannot change their basic economic models – not at least without changing the entire global economic paradigm, which sounds unthinkable in the increasingly challenged real world. Moreover, world governments are deeply scared to let these changes happen, being validly afraid of existential threats to their own reigning.
So make no mistake: decentralization, blockchain technologies, DEX, and DeFi wallets are evolving from underground “parallel world” phenomena to the core and roots of the modern financial system.
What will be the role of blockchain-based decentralization in these circumstances? Will the emerging digital finance concept defeat the old brick-and-mortar financial world, or will it help it heal and redefine itself? Time will show…