Fintech Out Of The Drawer – An Idea Based On: Fiat – Crypto – Colón

Technology and Money

Within all the global trends that impact the economy (performance of economic power reflected in leading global companies, regulatory changes, demographic situations, climate change, etc.), the new and disruptive technologies are marking a new reality. That is why, when speaking of artificial intelligence, the use of “big” and “small” data, social finance (social networks) are developing a number of financial technological solutions (FINTECH), which are modifying the financial infrastructure traditional, facilitating the circulation and regulation of money in transactionality within an increasingly technological ecosystem.

The concept, functionality and usefulness of money have evolved and gained importance throughout history, and now DTL technology for its acronym in English, (for example, Blockchain), is the one that has most revolutionized the traditional conceptualization of money through the creation of alternative forms of “digital currency”, which are increasingly accepted by more countries in a manner comparable to a traditional currency (FIAT). In 2020, after numerous consultations and studies, the Central Bank of Estonia announced the initiative for the creation of a digital monetary infrastructure from the creation of the Central Bank of Digital Currency. Let us remember that Estonia is part of the European Union (EU), and this initiative has moved the floor in that community to the point of generating real changes in the monetary policy of the EU.

It is known worldwide as China, with its “Digital Yen,” it began innovation processes in its monetary policy. Without going too far, we have also observed how the Bahamas launched its “Sand Dollar” as a monetary alternative for the circulation of capital through specific processes regulated by its Central Reserve Bank, for example that some countries have begun to issue digital currency without making any major changes in their traditional monetary policy.

An unknown subject

A few days ago, at 7:35 a.m., a very dear person, whom I always try to guide on economic issues, wrote to me on WhatsApp: – “Do you know why the money doesn’t reach me?” Surprised and shocked that at least I should have a window to advise him, I answered him immediately: “- Perhaps the issue of order and prioritizing needs”, and to which he replied: “Because money has no legs … that’s why it not reaches me.” I couldn’t help but laugh at his bad joke and at my naivety in believing that he was talking about a serious subject.

However, this led me to reflect that many of us go through life without really knowing how things work, just as we can fly without knowing how to fly an airplane, so we have been using money without knowing how it is formed, how it acquires value and how it influences in the socio-economic development of a person, a region or a country.

The term FIAT (nothing to do with cars), has a Latin origin that evoked confidence or an order to do. In terms of accounting, a banknote is really worth the paper and the ink that is in it, however, from an economic perspective, it is the value placed on said banknote by an entity that allows it to be valued in a different way. That value is expressed, in our case by the Federal Reserve of the United States (Dollar) or by the Central Reserve Bank (Colón), who order how to print it and how much to print. It is the trust in that entity that gives a value to that bill, and that is why the Pound, the Euro, the Dollar, the Yen, the Colon, etc., all have the value equivalent to the trust in its monetary system.

Over the centuries, what has happened is that the credibility of money and its value has been entrusted entirely to the people behind the institutions, and this has generated financial crises that go back thousands of years. , that is why in a totally disruptive way, technology has become a trust factor for the creation of an economic system that allows making payments, making transactions and generating security on a computer file that can be assimilated to a banknote.

What do we have to lose?

I am trying to go slowly and prudently not to create aneurysms in economists who defend the traditional monetary system and in the extensive controls that are exerted on the money in circulation within a country, however, I wonder, why cannot El Salvador create its own digital currency? (following the corresponding regulatory steps)

By its nature, the simple issuance of a digital currency is excessively cheaper than the issuance of a traditional currency, nor do we mention security about it; Through a currency of this type, payment systems and the transactional volume of the population would be accelerated, without denying the impact it would have on financial inclusion, of which no more than 70% of the population in the country is part.

For years (since dollarization) I have heard that El Salvador does not have a monetary policy, as well, it is better that it does not have it because the rulers would not be able to handle it and we would probably pay 20 colones per dollar (if not more). But, if the alternative to not changing this system was the gradual creation of a digital currency, issued and regulated by the Central Reserve Bank, which would encourage transactionality in rural areas, and in the informal sectors of the economy, wouldn’t it? would create greater confidence in the country?

The banknotes that circulate in our country bear the legend: “In God we trust”, but with all due respect to Uncle Sam, on a personal level, “In Tech I Trust” …also.

Contributing Advisors