The future of money and payments

Where are we headed?
We’ve come a long way since Valentine’s Day 1961 when the first rand was put into circulation by the SA Reserve Bank. Image: Shutterstock

In the last few centuries, money has changed a lot. During the 17th and 18th centuries a variety of monies were used, including ostrich shell beads and the rixdollar, the first banknote in southern Africa backed by silver.

In the 1800s, gold grew in prominence as money around the world. By the mid-1800s, there were 32 private banks, two mining companies and one trading company all issuing private banknotes in southern Africa that were a claim on gold.

After a severe fiscal crisis in the late 1800s, the rixdollar collapsed, but gold survived as money.

The Reserve Bank is 99 years old this year

The South African Reserve Bank (Sarb) was formed in 1921 by an act of parliament to stabilise financial conditions. At the time, the value of gold varied between South Africa and London, which led to an outflow of gold to Britain and threatened banking stability.

For 40 years, the Sarb implemented and managed a foreign monetary standard. South Africans used the SA pound, which was linked to the British pound sterling and defined as a fixed weight of silver. This in turn was convertible to gold. The Sarb promised to pay bearers of its banknotes a stated amount of pound sterling.

It wasn’t until Valentine’s Day in 1961 that the Sarb created and put into circulation the first rand.

As society and technology change, so does money

In the 19th century, anyone who could build a gold vault and write and issue a banknote certificate could get into the business of banking. There were virtually no licensing requirements. Similarly, a payments business was a courier company that moved banknotes or gold between banks and/or merchants and/or consumers.

In 1971, currencies were finally cut off from their gold backing.

In the same year, Intel produced the first microprocessor, the 4004, and the era of electronic money began.

In 2020, most money in circulation is electronic. Visa, Mastercard, Swift and Bankserv are the new electronic courier companies as they courier electronic financial messages between banks, merchants and consumers.

Similarly, the business of banking is still at its core about the safekeeping of client funds and keeping track of debits and credits, but banks now issue electronic credits in exchange for electronic or banknote deposits.

If money is not linked to gold, how is supply kept scarce?

For money to have value, it must be trusted and reliable in its future exchange value. To have value in the future, it must have a predictable supply. In other words, money must have a predictable mechanism to remain scarce and in limited supply.

Gold’s physical properties and limited supply on earth made it an excellent form of money and allowed it to survive and retain its value for 5 000 years.

When money is not linked to gold, supply is kept scarce by imposing laws and regulations, giving the power to mint new coins and banknotes to a trusted institution like a central bank. The Sarb is tasked, in terms of the Constitution, to maintain the value and scarcity of the rand and balance economic growth.

But when money is an entry in an electronic database, an Excel spreadsheet or electronic ledger, how do you keep it scarce if it can be created at zero extra cost?

The monetary technology itself doesn’t govern or self-regulate scarcity. Money becomes a legal and regulatory technology.

Enter blockchain

Regardless of the view of the blockchain, this is its fundamental innovation.

This technology system regulates the scarcity of a fully electronic currency that has no real-world dependencies.

And this regulation is incentivised by the economics created by the currency unit itself. The technology also has its own native messaging system, where payment instructions are communicated from ‘wallets’.

For the first time in history, there exists a scarce currency, ledger and payments system in a single open source technology system that anyone can connect to with existing internet protocols. It introduces new technologies, players, companies, jargon, skills and resources, and so on. This is not an endorsement of bitcoin, it is simply a statement of fact.

The invention of bitcoin has set off a series of innovations, leading to a Cambrian explosion of experimentation with blockchain technologies.

Managing a fundamental change in technology

What we do remains the same, but the technology we use is constantly changing. For example, we watched movies on VHS video tape, but now we stream them on Netflix. Although the technology has changed, it did not make movies disappear.

The same applies to money and banking. Blockchain may fundamentally disrupt the way banking services are distributed to, and consumed, by people.

The form of money and banking may change, but its fundamental function will remain the same – the communication of value.

How can we use this technology?

Investec Private Banking investigates the various blockchain use-cases such as cryptocurrencies, digital currencies, central bank digital currencies, tokens, digital identity, smart contracts.…

Investec’s blockchain team participated in Project Khokha in 2018 where the Sarb tokenised the rand on the Quorum blockchain. Together with Bankserv, we designed a blockchain digital identity system. We have also secured cryptocurrencies in hardware wallets.

We learnt that while blockchains are secure distributed databases and open up a range of potential use-cases, it means very little when the interface to connect to the blockchain is not secure.

We don’t know what the future of money looks like exactly

No one does. What we do know is that we have a role to play as a private banking partner to help our clients and broader society navigate the change in the world of money and investments.

Banking in 10 or 20 years’ time might be as different as Google Maps is to a folded paper map.

We are applying our experience and expertise in this innovative technology ecosystem to build digital asset custody capabilities, in close collaboration with regulators.

Chris Becker is blockchain technologies lead at Investec Private Banking.


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Blockchain = a natural environmental disaster in the making (that the next generation will have to deal with).

Greta Thunberg future children will tell their own mom “how dare you…!”

Explain the thinking behind your statement Michael?

Which crypto has the least CO2 carbon foorprint? No one practically knows (or care), but the next generation will deal with that matter.

“As blockchain math puzzles grow more complex, the computational power and energy required to solve them increases. This burdensome drain on energy sources truly highlights the negative impact Proof-of-Work mining has on the environment”

If the world goes mostly crypto (leaving FIAT behind), what amount of power-generation is the entire planet going to need eventually, to maintain virtual currency and be paid/mining for it?

Yes, am aware that paper FIAT money plays its part in deforestation, but the bulk of FIAT money is digitized through financial platforms/systems anyway.
(…there’s interesting links in the above single article. Otherwise the web of full of similar info)

While I personally think crypto is a great idea (yes, technological advancements are to be embraced), but there are other tech-minded people that recon blockchain may not be the right answer to crypto itself…

I have a string of tax clients high up in the local Tech/ICT industry, with many (surprisingly to me) not much bothered with crypto while they deal with more important daily stuff like cyber-security, coding, networks, etc.

Michael ….Santiago Velez, a respected Ethereum guru will calm your misgivings on the amount of energy and where it will emanate from, changing the foundations of existing tech companies into probably relics of the past

You will find it interesting and whats more… current banks like Investec are hopeless

Money evolves in a predictable pattern over millennia. For anything to be money, it must start out as a useful commodity like wheat, bread or eggs. Independent parties who do not know each other, trade commodities or services for other commodities or services. The money is only a token, a means of exchange that facilitates the exchange of one commodity or service for another. Money can never start as a token because initially, it must be a commodity or represent a commodity. Therefore, the actual payment for a service or product is another service or product. The money is merely a practical, light, and trustworthy intermediary.

This brings us to the point. Money starts out as wheat exchanged for eggs, a commodity exchanged for commodity. The process evolves and shells represent wheat, and eventually, all the different representations of commodities are tried and tested until gold and silver remain. Gold is commodity money. Wheat is exchanged for gold.

Now, this is where it gets interesting. Gold is precious and the risk of theft is ever-present. The owner of the gold stores his gold at the goldsmith and receives a receipt or certificate as proof of ownership. The wheat farmer uses this certificate to buy chickens, while the gold stays safely in the vault. The certificate represents the gold in the vault, it is not gold, it is paper that represents gold. The goldsmith issues more certificates or receipts to himself and uses those “fake” gold receipts to purchase stuff for himself. He becomes incredibly wealthy by issuing fake gold receipts until people realise that something is wrong and they come to exchange their certificates for gold. This is the run on the bank. They realise that their certificates are worthless, they refuse to accept certificates as payment and they go back to accepting gold as payment.

The current international currency system has gone one step further. In 1971, the members of the Bretton Woods agreement realised that the USA issued more fake receipts on gold (dollars) than the amount of gold they had in the vault. This led to a run on the US Treasury and the US unilaterally ended all convertibility of dollars for gold. The dollar was now a piece of paper, not a receipt or certificate for gold. The dollar no longer represents gold. The US government passes legal tender laws where they force citizens to accept unbacked and fake receipts as payment for real services and commodities.

All cryptocurrencies represent fiat currencies that are fake receipts. A cryptocurrency is a virtual receipt for a fake receipt. Cryptocurrencies are merely a further step in the evolution of money, away from the basis of money, which is commodities. The means of exchange loses value the further away it moves from gold, which is real money.

The system will reset once again, as it has done for thousands of years, where citizens will exchange wheat for chickens, then gold will become the means of exchange, leading to gold receipts as representative money, then fiat currency that is a system of fake receipts, then crypto that is a virtual receipt for a fake receipt.

Nice Sensei, enjoy your views. However: everything you can imagine is changing so rapidly that one cant stay abreast.USD has been around 100 odd years.Medieval and earlier….gold,silver and barter. Essentially gold was just another form of barter, a transportable good that is scarce that can be exchanged for whatever.Most of this process revolves around scarcity and whether the article is “true” , not debased.Lets say paper for some reason was incredibly rare and could not be debased….it may well have been money. Would have been easier to transport, easier to store if the rats could not get to it.So debasement(gold not “true” in bunkers and money printing) , rarity, ease of transport( gold is not) and these days ease of access and control by owner( nowadays with fiat/bankers/state all has fallen away). There will ” never” be a gold standard again.Gold is centrally controlled and manipulated…and debased. I have read esp Nick Szabos articles(very worthwhile) , Orlin Grabbe( very interesting , still online available if you search. He predicted crypto and was a gold man) Lastly: we are in the early age of robots/AI. Soon machines will talk to each other and transactions of magnitude will be concluded between the AI management of robotic factories without/or little human intermediation.Transactions will be paid in machine money.Science fiction? What you can imagine in wild dreams are being done now.Just as an aside, and dont take this as blasphemous. Imagine biblical times and you see a hand writing a message on a wall at a big party….Today ,if you want to,it is possible to give a completely rational explanation for that.In fact if Bill Gates has a dinner party and all of a sudden a message appears on the wall with a hand without a body writing it….the guests will appear pretty bored with his party trick.The third wave is here, th fourth is just on the verge of imposing itself

Thank you. I appreciate your views. The problem is, unless the fiat currency system collapses by itself, crypto wont be able to take over as a means if exchange unless it becomes legal tender. This implies that governments have full control over the process.

To be able to regulate the banking system, and to save it from systemic collapse, governments must have a monopoly on the creation of currency. This is the spanner in the works for crypto domination. We do not have a system of free banking like we used to have under a gold standard. In modern times banks need a special license from the government. Banks have a special set of laws that govern them. The IMF and the World Bank are in control of the international banking system.

Crypto will only be able to evolve as an accepted means of exchange if the IMF allows it to. This tells us that crypto is at the mercy of the IMF and the relevant Reserve Banks.

Crypto has a bright future under a system of free banking. Free banking can only evolve after the implosion of fiat currencies and with a return of the gold standard.

End of comments.


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