Journal of Digital Banking: Same Game – Same Rules?

It was a pleasure contributing once again to a Henry Stewart Publication. This time in co-authorship (Christoph Impekoven & Jochen Werne) we delineate for the Journal of Digital Banking the differences between stablecoins, in particular, and ‘fiat’ currencies, in general. When you have read this paper, you will know what a stablecoin is, what types there are, how it differs from the US dollar or the euro and why the most important currency in all worlds is ‘trust’.

The Journal can be bought online HERE

Journal of Digital Banking

Journal of Digital Banking is the major professional journal publishing in-depth, peer-reviewed articles and case studies on FinTech innovation, digital disruption and how to develop a profitable, customer-focused digital banking strategy – specifically by using technology and automation to deliver efficient, secure and seamless customer experiences with lower operating costs.

Each quarterly 100-page issue – published in print and online – will feature detailed, practical articles showcasing the latest strategic thinking on how to exploit new and existing digital banking markets, business models and FinTech innovations along with actionable advice and ‘lessons learned’ from fellow digital banking professionals on the key business, risk and operational requirements for putting that strategy into practice. It will not publish advertising but rather in-depth analysis of new thinking and practice at a wide range of financial institutions, FinTech innovators and start-ups, investors, central banks and financial regulators worldwide for readers to benchmark their organisation against, with every article being peer-reviewed by an expert Editorial Board to ensure that it focuses on the digital banking professional’s perspective, the challenges they face and how they can tackle them.

Journal of Digital Banking is listed in Cabells’ Directories of Publishing Opportunities.  

Journal of Digital Banking is abstracted and indexed in the Research Papers in Economics (RePEc) database IDEAS

As such Journal of Digital Banking publishes articles on:

  • Innovative digital payment services
  • FinTech innovation
  • Digital payments product management
  • AI and machine learning
  • Mobile banking and apps
  • Blockchain
  • Open banking
  • Customer service, personalisation and user experience
  • Digitisation initiatives and replacing legacy systems
  • Investing in digital banking start-ups
  • Big Data and analytics
  • Risk, fraud and security
  • Regulation and compliance
  • Barriers to consumer adoption and how to overcome them
  • Standardisation initiatives
  • Digital, alternative and cryptocurrencies
  • Business models and partnerships
  • Digital banking operations and services

Rather than publishing advertising or the ‘bite-sized’ articles all too common on the internet, Journal of Digital Banking provides in-depth guidance and analysis on the key issues facing financial services in today’s rapidly evolving digital world, with high-quality articles from leading banks and other financial institutions, FinTech innovators and startups, central banks, financial regulators, investors, consultants and service providers, plus researchers and educators in the field.

Essential reading for Departmental Heads, Directors, Managing Directors, VPs, SVPs, EVPs and Senior Managers of:

  • Digital strategy
  • Digital banking
  • Mobile payments
  • Online banking
  • Payments innovations
  • Marketing
  • Customer insights and analytics
  • User experience
  • Payments
  • Social media
  • Payments strategy
  • Product management/strategy
  • Transaction banking
  • Payments operations and services
  • Payment systems; as well as
  • Presidents, CEOs, CTOs, CFOs, COOs and CIOs

New publication: The world’s most important currency 

It was a great pleasure for me to contribute to Roland Eller’s, Markus Heinrich’s and Maik Schober’s latest, much acclaimed publication ”Investing money like the pros”.

As co-authors, Christoph Impekoven and Jochen Werne reflected on the topic ”The world’s most important currency”.

DO THE SAME RULES APPLY TO CENTRAL BANK AND CRYPTOCURRENCIES WHEN IT COMES TO MONETARY STABILITY? AND HOW DOES AN INVESTOR RECOGNISE THE SAFE HAVEN IN THE CRYPTO WORLD?

FIND OUT MORE IN THE NEW BOOK

The financial market offers numerous opportunities to achieve returns with manageable risk. For anyone who wants to take advantage of these opportunities and make long-term provisions, Geldanlage wie die Profis (Investing like the Pros) offers the knowledge and proven strategies of more than 25 renowned authors, which can be easily transferred to private investment.

On the one hand, the most important topics for beginners are covered: How do you find the right risk class for you? How beginner-friendly are shares, funds and ETFs? What tax issues need to be considered? On the other hand, the current megatrends are explained – alternative energies, cryptocurrencies and the real estate boom – where are high profits to be made, where does risk predominate? An indispensable guide for anyone who wants to make more out of their savings in the long term.

The book can be bought on Amazon – just click here

TIME of MISTRUST

A plea for trust in a time of mistrust. Trust is the foundation on which monetary systems are built. Trust forms the basis of international diplomatic relations and is the foundation for all progress.

But what happens once trust is shaken?

The diplomatic dispute over a multibillion-dollar submarine treaty – which took place three months before the Russian – Ukrainian war, concerns about a new cold war, and the collapse of the Bretton Woods system exactly 50 years ago are the manuscript for this maritime-themed French-American story about money and trust. It is an object lesson for our times, where we are witnessing the emergence of crypto-financial markets and thus stand on the threshold of a new form of money.

TIME OF MISTRUST

by Jochen Werne

After the traditional long summer vacation, France awakens in September from its brief self-created slumber, as it does every year. Life begins to take its usual course, even if some are still reminiscing, perhaps enjoying the first harbingers of post-Covid worry-free life. Not so Philippe Étienne. For him, on the other side of the Atlantic, in Washington, which is actually picturesque at this time of year, autumn begins with a diplomatic thunderstorm. A storm that must have been new even for the 65-year-old gray-haired eloquent ambassador of France. 6160 kilometers away, at the Élysée Palace, Président de la République Emmanuel Macron decides to call his top diplomat in the United States, along with his Australian counterpart Jean-Pierre Thebault, to Paris for consultations. The unprecedented act in Franco-American history is justified by Foreign Minister Jean-Yves Le Drian with the “exceptional gravity” of an Australian-British-American announcement, and impressively underlined with the words “lie,” “duplicity,” “disrespect” and “serious crisis.”

At the heart of this crisis is the surprise announcement by the aforementioned countries to enter into a strategic trilateral security alliance (AUKUS) with immediate effect. An alliance that also provides for the procurement of nuclear-powered submarines for Australia, effectively putting to rest a 56-billion-euro French-Australian submarine order already initiated in 2016. The conclusion of the agreement comes at a time when U.S. President Joe Biden has asserted to the UN General Assembly, “We do not seek – I repeat, we do not seek – a new cold war or a world divided into rigid blocs.” However, experts, such as renowned historian Niall Ferguson, have been talking about this so-called “new cold war” between the U.S. and China since 2019, and it is not about nuclear arms races, but rather about technology supremacy in cyber security, artificial intelligence and quantum computing. Even though nuclear-powered submarines are at the center of the diplomatic dispute, one is quick to note in the AUKUS agreement that cooperation in the aforementioned fields is one of the most important components of the treaty. An objective that is perhaps also congruent with French interests. But the dispute between the old friends is less about the “what” than about the diplomatic “how” – that is, about the breach of trust that is triggered when close allies are simply presented with a fait accompli. Facts that also affect them financially and personally.

Because money and trust are closely interwoven. The trust of a bank that the creditor will repay its debts. A citizen’s trust that the currency in which he or she is paid their salaries is stable. A state’s trust in a currency system that the agreements made there will be honored by all. Georg Simmel, in his “Philosophy of Money,” sums it up this way: “Money is perhaps the most concentrated and pointed form and expression of trust in the social-state order.”

Last year marked the 50th anniversary of another French-American trust-busting melodrama with a maritime backdrop. Benn Steil, senior fellow at the Council on Foreign Relations, describes the moving events of August 6, 1971, in his book, The Battle of Bretton Woods, as follows: “…a congressional subcommittee issued a report entitled ‘Action Now to Strengthen the U.S. Dollar` that concluded, paradoxically, that the dollar needed to be weakened. Dollar dumping accelerated and France sent a warship to pick up French gold from the vaults of the New York Fed.”

At first glance, this dramatic gesture by then French President Georges Pompidou in the final act of the collapse of the Bretton Woods system seems as strange as the withdrawal of ambassadors today. The basis, however, is similar and lay then as now in an equally shaken trust between the great nations that were nevertheless so closely intertwined. Without going deeper into the new monetary order created after World War II, with the U.S. dollar as the anchor currency, it is important to understand the reason for the French revolt evident in the “White Plan.” The plan provided that the U.S. guaranteed the Bretton Woods participating countries the right to buy and sell gold indefinitely at the fixed rate of $35 per ounce. The dilemma of this arrangement became apparent early on. For by the end of the 1950s, dollar holdings at foreign central banks already exceeded U.S. gold reserves. When French President Charles de Gaulle asked the U.S. to exchange French dollar reserves for gold in 1966, the FED’s gold reserves were only enough for about half that amount. The ever more deeply anchored loss of confidence forced the American president Richard Nixon on August 15, 1971 to cancel the nominal gold peg and the so-called “Nixon shock” ended the system as it was.

And where something ends something new can or will inevitably begin.

Today we live in a world where the stability of our currency is based on our confidence in government fiscal policy, the economic strength of our country, and the good work of an independent central bank. However, we also live in a time when new currency systems are already looming on the dense horizon. The basis for this was laid in 2008, not surprisingly, by one of the most serious crises of confidence in the international banking system that modern times have seen. And the new systems are being implemented with the help of cutting-edge distributed ledger blockchain technology. The new, with its decentralized nature, is challenging the old. While many of the new currencies in the crypto world, such as bitcoin, are subject to large fluctuations, stablecoins promise a link and fixed exchangeability to an existing value, such as the US dollar or even gold. However, the old Bretton Woods challenge of being able to keep this promise at all times remains in the new world. Millions of dollars in penalties imposed by the New York Attorney General’s Office on the largest U.S. dollar stablecoin, Tether, for not being fully verifiable do little to help trust, especially when less than 3 percent of the market capitalization is actually deposited in U.S. dollar cash. As always with new ones, trust has to be built up. This can be done privately, perhaps with a stablecoin backed 100% by central bank money, or by the state, with well thought-out central bank digital currencies, such as the digital euro planned by the European Central Bank.

We live in a world of perpetual rapid change and trust is, as Osterloh describes it, “the will to be vulnerable.” Without trust, there are no alliances, no togetherness, no progress.

Philippe Étienne was back in autumnal Washington after just a few days and has since been working again on what diplomats are best trained for – building trust.

Sources

Billon-Gallan, A., Kundnani, H. (2021): The UK must cooperate with France in the Indo-Pacific. A Chatham House expert comment. https://www.chathamhouse.org/2021/09/uk-must-cooperate-france-indo-pacific (Retrieved 24.9.2021)

Brien, J. (2021): “Stablecoin without stability”: Tether and Bitfinex pay $18.5 million fine. URL: https://t3n.de/news/stablecoin-tether-bitfinex-strafe-1358197/?utm_source=rss&utm_medium=feed&utm_campaign=news (Retrieved: 9/30/2021).

Corbet, S. (2021): France recalls ambassadors to U.S., Australia over submarine deal. URL: https://www.pressherald.com/2021/09/17/france-recalls-ambassadors-to-u-s-australia-over-submarine-deal/ (Retrieved 9/25/2021).

Ferguson N. (2019): The New Cold War? It’s With China. And It Has Already Begun. URL: https://www.nytimes.com/2019/12/02/opinion/china-cold-war.html (Retrieved: 9/30/2021).

Graetz, M., Briffault, O. (2016): A “Barbarous Relic”: The French, Gold , and the Demise of Bretton Woods. URL: https://scholarship.law.columbia.edu/cgi/viewcontent.cgi?article=3545&context=faculty_scholarship p. 17 (Retrieved 9/25/2021).

Osterloh, M., Weibel, A. (2006): Investing trust. Processes of trust development in organizations, Gabler: Wiesbaden.

Steil, B. (2020): The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the new world, p. 377.

Stolze, D. (1966): Does de Gaulle defeat the dollar? In ZEIT No. 36/1966. URL: (https://www.zeit.de/1966/36/besiegt-de-gaulle-den-dollar/komplettansicht (Retrieved: 9/26/2021)

The Guardian Editorial (2021): The Guardian view on Biden’s UN speech: cooperation not competition URL: https://www.theguardian.com/commentisfree/2021/sep/22/the-guardian-view-on-bidens-un-speech-cooperation-not-competition(Retrieved: 9/29/2021)

Unal, B., Brown, K., Lewis, P., Jie, Y. (2021): Is the AUKUS alliance meaningful or merely a provocation – A Chatham House expert comment. URL: https://www.chathamhouse.org/2021/09/aukus-alliance-meaningful-or-merely-provocation (Retrieved: 9/24/2021).

Time Online (2021): France sees relationship in NATO strained. URL: https://www.zeit.de/politik/ausland/2021-09/u-boot-deal-frankreich-australien-usa-streit-nato-jean-yves-le-drian?utm_referrer=https%3A%2F%2Fmeine.zeit.de%2F (Retrieved: 9/25/2021)

THE NEW REALITY OF MONEY

A historical-social innovation briefing for a world where military high-security standards meet digital crypto-assets

by Jochen Werne

Chief Development & Chief Visionary Officer PROSEGUR Germany

SAVE THE DATE

Strategy Summit B2B Sales & Key Account Management
5. – 6. October 2021

The aim of this contribution to the debate is to combine historical insights into the meaning of money with the latest technological developments in the digital age, to compare visions with realities and to develop options for action for shaping the digital transformation of money.

The 10 most successful bank robberies in human history, in which the equivalent of US$1.62 billion was taken at sometimes massive expense, seem like the work of amateurs compared to the US$3.78 billion taken by cybercriminals in 2020 alone. In a world where tech companies are spearheading campaigns to create a new cryptocurrency and bitcoin is surpassing the US$50,000 mark because a visionary electric car maker wants to recognise the cryptocurrency as a means of payment, some fundamental questions arise: How must money be defined in a digital world to reliably fulfil the characteristics of a universally recognised store of value and medium of exchange? And what changes will result if so-called stablecoins challenge the banks’ classic deposit business and their traditional business models?

„POWER of DISPOSAL“ in Der-Bank-Blog

Cash, book money and free availability

by JOCHEN WERNE published in DER BANK BLOG (30 October 2020) – For the original version in German please follow this LINK – English version translated by Deepl.com

“Disposal power” or “authority to dispose” are legal terms which are of great importance in the discussions on cash and book money. It also concerns the freedom of choice of citizens.
The German language today is much more extensive than the 100,000 words used by Goethe in his time. We hardly use many of these words, which are so characteristic of our language, despite their meaning. Perhaps some readers feel the same way about the word “Verfügungsmacht” as I did when I consciously read it for the first time in a quotation from the former president of the Federal Constitutional Court, Prof. Dr. Udo Di Fabio. And perhaps it is like with many things in life that one only realises the deeper meaning at the moment when one deals with it in more detail.
In our modern times, hardly anyone will visit the university library to quickly get to grips with a topic. Instead, people google the library to get an overview. And while less than 20 years ago we would have found our first little research happiness about the term “power of disposal” or also “authority to dispose of property” in the library of the law faculty, Internet research reveals in seconds a glance at a litany of legal forums.


Definition of power of disposal
What is striking here is that the focus is not on the definition of control, but that the topic of regaining control dominates the first page on Google. Inevitably, this reminds me of my first visit to the Munich Google office many years ago. Almost rapturously in his remarks about the power of the algorithm, a sales employee of the world’s most powerful search engine asked the group if we knew where on the Internet they hid a body. With a glance into his head-shaking auditorium, he solved the riddle with a smile and said: “On the second page of Google search. Inevitably, of course, one then asks oneself – albeit only rhetorically – whether the Google business model works in particular because many have simply relinquished control over their data.
The power of disposal or also power of disposition is defined as the “legal power to dispose of an object”. Which is banal, meaning that I should also have the power of disposal over what belongs to me – in other words, what is legally my property. However, the success of my own research on the first Google page suggests one thing above all else to the reader: that the power to dispose of property can be lost. For example, also of your own money? In order to answer this question, one should basically distinguish between cash and book money.


Cash, book money and the power of disposal
With cash, I have direct unlimited physical control over my money in the form of coins or notes. This power of disposal can of course be lost if I am robbed or simply lose my wallet. Without entering into the legal depths of “normal” debt and the right to dispose of money, citizens have in principle all the means guaranteed by the state at their disposal to recover their property.
The same applies to book money, if, for example, money is lost through credit card fraud when shopping online. The limits of non-physical power of disposal would, however, quickly become apparent if a bank went bankrupt and the money parked in the account in excess of the deposit guarantee was no longer available.
Cash, book money and free availability
It is utopian and not at all sensible to hoard all one’s “money” as cash. But it is certainly important to make clear what it means to no longer have the freedom of choice between cash and book money and thus to completely give up one’s right to physical availability of money.
In the concluding sentence of his speech at the 2018 Cash Symposium of the Deutsche Bundesbank, Udo Di Fabio underlined what is probably the most important point in the current discussion surrounding this election. He said that it should not be “disregarded” in principle that every citizen should be able to freely dispose of his money – his “exchangeable assets”. He further added that this was particularly true when “financial privacy” was considered a legal requirement.
This means that a society whose entire assets would only be managed digitally in book money could also only exercise limited individual power of disposal over its money and would have to face the question “whether the state, through its central bank, would be entitled to carry out a controlled devaluation through negative interest rates, booking discounts or fees on credit balances”. Prof. Di Fabio further points out that this would then not only be an encroachment on ownership but, as a result, possibly also the imposition of a special levy, which is only permitted under strict conditions in the German legal system.


Conflicts of interest and trust
It is easy to see that this issue can give rise to considerable conflicts of interest in the triangular relationship between citizens (- how can I protect and increase my money), government (- how can public debt be reduced) and central bank (- how can economic and monetary stability be ensured). This is particularly true in the light of the continuing challenges posed by the Corona pandemic.
It is thanks to the excellent work of the Deutsche Bundesbank since the Federal Republic of Germany came into existence and the confidence it has built up in our currency that the confidence of the public in both cash and book money is so high in this country.
Freedom of choice between cash and book money
Of course, another decisive aspect of this trust is the freedom of choice between cash and book money, which the Bundesbank also advocates. This freedom of choice also offers banks the opportunity to deal flexibly with the funds. For example, instead of charging 100 percent negative interest on book money to citizens or companies, banks could also physically hold it or have it held in safekeeping as cash.
Since it is not part of a bank’s core competence to operate high-security systems and one certainly does not want to expose one’s own employees to the risk of a robbery or the blackmailing abduction of a family member, there is of course the possibility of outsourcing such a service in a LCR-compatible and MaRisk-compliant manner. A service that supports the customer in parts of his liquidity management and does not make it difficult for him to possibly maintain his own safe in his own four walls and without a security concept and thus endanger himself and his family.
“Money is coined freedom”
In his prose work “Records from a House of the Dead”, the Russian writer Fyodor Mikhailovich Dostoevsky describes his own experiences in Siberian captivity and formulates the later much quoted sentence: “Money is coined freedom”, thereby describing the vital relevance of a free exchange of goods in an unfree environment – and this through coined cash money. For the young Dostoyevsky, the changeover to a pure book money system in Siberian prison would have meant the withdrawal of his individual power of disposal over money, so that in reverse he would no longer have any assets which he could have used for the exchange of goods and other things. He describes this situation in the quintessence as follows: The suffering of prisoners who do not have money is “10 times greater”.
It is therefore reasonable to assume that the intellectual, serious discussions about the freedom of choice between cash and book money and the freedom of citizens in a constitutional state, which is freely consolidated in its constitution, would please Dostoevsky with his experiences in an unfree society. And it is characteristic of our open society that, especially in a crisis like the present one, we are conducting and continuing the debate on freedom of choice and power of disposal at this level, and not only with regard to our money.

Libra and the Dilemma of Trust

A crypto currency challenges technology, regulation and humans.

Author: Jochen Werne

“Money is perhaps the most concentrated and acute form and expression of trust in the social-state order.”

Georg Simmel


In this clarity, the German philosopher and sociologist Georg Simmel, born in 1858, formulated the value of a currency in his work “Philosophy of Money”. This clear and comprehensible insight also provides a simple basis for understanding why, for example, states rely on the independence of their central banks. And just as simply the question arises, which order do you trust when it comes to crypto currency?

Almost 4,000 of these currencies now exist worldwide. After Bitcoin, Ether, XRP, Litecoin and Co., Libra now wants to establish itself as a future heavyweight in the market – and with a noble goal. Libra is to become the cashless payment option “for mankind” and make international payment easier.

Libra Coin – the currency of the future?

No crypto currency received comparable media attention, triggered only by the announcement of the project. And the emotionality and toughness with which the discussion is already being conducted shows how seriously the topic is being taken. It’s about reputation, influence, control, responsibility and only in the last instance about technology. Central banks and government bodies are sceptical about the “currency of the future” on a broad basis, even though the advancing globalization could argue for a single currency in the long run. A currency that supports a consistent free exchange of goods and services. Also under discussion is whether Libra Coin could be the means of payment for the approximately 1.7 billion people who have no access to banking services and whether the familiarity and the large target group of Facebook, combined with the announced low transaction costs, could make it possible to reach billions of people worldwide.

Challenges at all levels

Technically, not all hurdles have been cleared yet: In order to make a stable coin possible, it is necessary to find the right technology. It is precisely this stability that is supposed to distinguish Libra Coin from other crypto currencies and thus also make it suitable for skeptical end consumers. Members such as Mastercard, Paypal or Ebay should also provide the Libra Association with their names and brand promises additional confidence for the end consumer. But already today the alliance is not as stable as the founding members had hoped and the exits of Mastercard, Visa and Paypal weakens the consortium.

The Libra Association has repeatedly emphasized that it wants to comply with all regulatory aspects, but there are voices at the political and banking levels that are extremely sceptical about the project. The new payment system raises many questions in monetary and legal terms. Central banks and supervisors want to keep an eye on the influence of the potentially new currency and usually share the view that whoever acts like a bank must be treated like a bank. In other words, comprehensive requirements must be met and regulations observed – especially at the international level. This is difficult because current regulations are designed for the classical financial system, with which the Libra system has largely no points of contact. The aim is to keep total regulatory influence and not to allow any possible loopholes.

Despite its American origin, the Libra Coin is to be administered from Geneva by the Libra Association. The idea here is to be regulated by the Swiss Financial Market Supervisory Authority FINMA. Although Facebook has paid a lot of attention to the underlying technology, the legal issues still need to be clarified. Especially with regard to money laundering, consumer protection and possible misuse of the currency for illegal activities. Within the Association, there will be no special treatment for the founder Facebook, but equal voting rights for all members.

Acceptance and European values

With regard to Germany, it can be said that its citizens are within the international average as far as their affinity for digital is concerned. However, a historical-cutlurell caution can certainly be observed with regard to the topic of money, which certainly explains the well-known love of cash. A more pronounced European awareness of data protection with the General Data Protection Regulation (GDPR) makes many people, especially in Germany, sceptical about the subject. The fact that Libra was launched by Facebook is hardly a confidence booster after the Cambridge Analytica scandal. The fear of the transparent customer meets with security concerns about one’s own savings. Every German knows the quote: “Friendship ends with money” and thus new things are always put test. Culturally different in Sweden, where sometimes it’s only possible to pay by card. The same in China, where WeChat Pay and Alipay are no longer just a trend.

As always, changes are taking place step by step. It remains to be seen whether Libra Coin in its current form has future prospects. In any case, any change can only work if it is accepted and used by the end consumer despite all skepticism.

And this stands and falls – also in the digital world – with what Georg Simmel already put in the centre in terms of money in the 19th century: CONFIDENCE.

A more in-depth look at money and value can be found in the article “Coined Liberty 2.0“.

Following the keynote on “Libra in Retail?” at the Payment Summit 2019 in Hamburg, the article “Libra and the Dilemma of Trust” has been published to give participants further insides on the topic.