Protiviti-Oxford study on the future of money and digital disruption in the future

Monetary disruption

With so many executives around the world anticipating the end of paper money sooner rather than later, there’s little doubt that we are in the midst of big changes to the global monetary system. Over the next decade and beyond, a massive disruption—the evolution from cash to both regulated and unregulated digital currencies—will upend traditional financial systems and infrastructure in an unprecedented way, posing both known and unknown risks for businesses worldwide.  

Indeed, 88% of global business executives say they expect increased business risk factors to accompany the anticipated changes to the monetary system over the next 10 years, although about half of those quantified the risk as “moderate.” Fewer executives in North America were concerned about increased business risks than their counterparts in Europe and Asia-Pacific.

We asked executives to identify and rank the biggest challenges their businesses will face as they transition to a cashless business. Their top five are:

• Infrastructure
• Privacy and security concerns
• Government regulation
• Customer adoption
• Financial crime / fraud protection

Regional variability

Interestingly, there were geographic disparities among the top three challenges: “Infrastructure” was overwhelmingly the top concern in North America. It was also first in Asia-Pacific, but barely edged out “government regulation.” In Europe, “privacy and security concerns” and “government regulation” tied for the top spot.

When we looked at the responses of those in the financial services industry compared to all others, there was one major disconnect. Financial services executives did not view “customer adoption” as a top five challenge. They ranked it seventh, significantly behind the other four listed above and also lower than concerns about “transaction fees” and “lack of trust in digital currencies.”

The good news is two-thirds of all global executives say their companies are somewhat prepared” for a significant disruption to monetary policies and structures. Another 5% say they are “extremely prepared.” However, in Europe that certainty is not as high: 43% of executives from that region report they are either “neutral” or even “somewhat unprepared” for the changes.

Future of money - The rise of digital currencies

As cash goes away over the next five, 10 or even 20 years, it will ultimately be replaced by existing and emerging digital currencies, which take many forms:

• Central bank digital currency (CBDC) is issued by a country's central bank and is similar to cryptocurrencies, except that its value is fixed by the central bank and is equivalent to the country's fiat currency.
• Cryptocurrency is a digital currency secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Most cryptocurrencies exist on decentralised networks using blockchain technology.
• Stablecoins are cryptocurrencies with value tied to that of another currency, commodity, or financial instrument and aim to provide an alternative to the high volatility of the most popular cryptocurrencies, such as Bitcoin.

Whichever form they take, an overwhelming majority of business leaders (87%) believe digital currencies will have an impact on their business over the next 10 years. Given that, it’s reassuring that nearly two-thirds (64%) say they and their businesses will be comfortable using digital currencies in the future. Not surprisingly, financial services executives’ level of comfort skews higher than their counterparts in other industries, 84% versus 61%.

Regulation of digital currencies

Given that digital currencies can be regulated or unregulated, we asked executives their preference: 59% would prefer regulated, while 35% prefer a mix of regulated and unregulated. Only 6% would prefer an unregulated digital currency environment.

But here’s a significant geographical disparity. In North America, only 36% of business leaders say they prefer a regulated environment. The numbers are much higher among executives in Europe (84%) and Asia-Pacific (69%). More than half (54%) of North American executives would prefer a mix of regulated and unregulated. That number dips to 29% in Asia-Pacific and plummets all the way down to 12% in Europe.

Privacy, fraud, and corruption

But a more digitised financial future comes with more threats. Consider this: A staggering 89% of business leaders say they are concerned about their ability to protect customer and client data in a digital currency future. Here’s a geographic snapshot of that data point: Asia-Pacific, 94%; Europe, 92%; North America, 83%.

Another eye-opening statistic: 61% of executives say they expect that crime, fraud and corruption will be more prevalent in financial transactions in a digital currency future. Another 31% say those risks will remain about the same, while only 8% suspect they will be less prevalent in the future. Some experts have suggested emerging technologies, such as blockchain and NFT, could help secure the system and actually decrease fraud and crime. But that remains to be seen.

When it comes to what they see as the biggest threats to their companies’ financial stability over the next 10 years, global business leaders were asked to choose from eight possible choices. Their selections, ranked from most to least threatening, are:

• Hyperinflation/interest rates
• Fraud, financial crime
• Geopolitical uncertainty
• Lack of trust in financial institutions
• Income inequality
• Global digital inequity
• The rise of digitised currencies
• The decline of the U.S. dollar

Another industry outlier: Those in financial services are far less concerned about “hyperinflation and interest rates” (20 percentage points lower than other sectors) and far more concerned about “lack of trust in financial institutions” (22 percentage points higher than other sectors).

Technology, partnerships, and disintermediation

More than half of survey respondents say they expect emerging technologies to have an impact on their businesses’ financial transactions over the next 10 years, and 70% say they are likely to identify and leverage strategic partnerships with fintech companies, payment processors, or blockchain providers over the next decade. Financial services executives stand out, once again, as far more likely to expect to form strategic partnerships with technology providers (90% vs. 67%) in the future.

We also asked business leaders about the potential impact of direct payments and/or loss of intermediary institutions (such as banks, clearing systems, payment systems operators, card organisations and electronic money institutions) on their business. Not surprisingly, more than half said it would be a bad thing, with 45% saying they expect “somewhat negative” and 9% saying they expect an “extremely negative” impact. However, 21% say the loss of intermediaries will have “no impact” and 25% say it would have a “somewhat positive” impact.

Confidence in U.S. Dollar

In terms of the threats discussed earlier, the potential decline of the U.S. dollar barely registers as a threat at all. As we are about to undergo a seismic shift in the global monetary system and begin a transition from cash to digital currencies, one thing seems certain: Business executives worldwide have confidence the U.S. dollar will remain the world’s reserve currency.

Perhaps that’s not particularly surprising: Business leaders are most likely rooting for stability, which the dollar provides among growing currency chaos. The fact is that nearly four in five respondents (79%) believe the U.S. dollar will still be the world’s dominant medium in 10 years’ time.

That confidence varied slightly by geography (North America, 90%; Europe, 77%; Asia-Pacific, 70%). And when we asked executives what could, potentially, replace the U.S. dollar someday, executives overwhelmingly opted for another stable fiat currency, the euro (58%), with the Chinese yuan coming in second at 17%. None of the new, emerging currencies—Bitcoin, an IMF-backed world currency, a BRICS-backed global reserve currency or an unregulated cryptocurrency—could crack even 5%.

Storing value, accumulating wealth

Finally, we asked global executives what they thought would be the dominant way for investors to store value and to accumulate wealth in ten years’ time. Here are their answers, ranked from most dominant to least dominant:

• Private equity / Investments
• Property and real estate
• Gold and precious metals
• Bank notes / bank accounts
• Digital currencies
• Physical assets / commodities
• Jewelry / precious stones
• Artwork / creative assets

When we look at the responses to those global business leaders in the financial services industry measured against those who are not, some big discrepancies emerge when asking about acquiring wealth. Those in financial services were not as enthusiastic about “private equity” or “property and real estate” but were about twice as likely to say, “physical assets and commodities” (32% vs. 15%) and “jewelry and precious stones” (13% vs. 7%).

Conclusion

It’s clear we are entering a tumultuous time when it comes to the future of money. In fact, in many cases, we have already begun to feel the first wave of digital disruption as money goes mobile. It won’t stop there. The decade ahead will be defined by money and its transformation over time. How those changes impact business, commerce, countries, communities, individuals, industries, financial markets and the global economy remains to be seen.

The “Executive Outlook on the Future of Money, 2033 and Beyond” offers a sneak peek at where we are today, but more importantly, where we are going. The good news: Global business leaders seem to be more than ready, willing, and able to take on the seismic changes ahead, and the challenges and opportunities that arise in whatever new global monetary system emerges over the next decade and beyond. And you can take that to the bank! Or, perhaps, somewhere else.