OP-ED | Technological changes in financial infrastructure and global monetary relations

By Rawle Nyanzi

In the current day, online payments are king. In an instant, goods and services can be purchased from anyone, anywhere, and at any time. The money goes through instantly, without a hitch. And since the onset of the COVID-19 pandemic, some brick-and-mortar stores have been able to keep their lights on through online sales. Whether through large retailers like Amazon and Walmart, or payment processors like PayPal and Zelle, e-commerce is an outsized part of the global economy.

However, this convenience comes at a steep cost.

Payment processors such as PayPal, Zelle, and Cash App are privately-owned, for-profit companies. Apart from regulations to prevent fraud, money laundering and terrorist financing, these firms can do business however they please — and with whomever they please. This means that, for any reason or none at all, a payment processor can refuse service to an individual or group.

And finance is not a free, open market. This gives payment processors a lot of power.

Recently, a popular pornographic website called OnlyFans was set to ban said pornography before backtracking a few days later. They had suggested that their banking partners had compelled the change, but they only backed off because of a deal struck behind the scenes. Since there are few reliable alternatives to large firms like MasterCard, Visa, or PayPal, this incident illustrates the immense power that payment processors wield. With the stroke of a key, they can decide who stays in business and who doesn’t. In a world of e-commerce, cash and checks cannot compete.

However, despite the reach of the payment processors, they do not act without backup, and they have the best backup of all: the United States government. The US dollar is the world’s reserve currency, and the government can forbid banks anywhere from processing dollar-denominated payments, which are usually paid electronically. The US government has used this leverage to enforce its sanctions regime (for example, against Iran), and keep even its allies from sidestepping it. Even a large, developed economy like that of the European Union cannot just use its own currency to route around the dollar, since it relies so much on trade with the US, and thus the banks must be able to process US dollars if commerce between the two economies is to remain uninterrupted. Such leverage gives the US government the ability to steer the world economy wherever it desires.

Therefore, the power of the payment processors is not merely the power of private industry. No entity can become this powerful without the backing of an even more powerful state, and the US government is only too happy to assert its dominance in this area.

But that said, e-commerce has the potential disrupt the power of the US dollar.

India and Singapore are, in 2022, setting up a means to transfer payments directly between each other without intermediaries. El Salvador has adopted Bitcoin as legal tender. China is well ahead in developing and using its own digital currency. Even the central bank of Jamaica has introduced a digital currency in that country. Before the widespread adoption of e-commerce, such innovations would not have been necessary. But globalization, epitomized by multilateral production, worldwide trade and now the Covid-19 pandemic, has driven countries to find more efficient ways to settle cross-border financial transactions. The exchange of digital money sidesteps existing reserve currencies and the control that the owners of these currencies hold over other countries. China which invented paper currency is leading the world in developing and using digital money. It is reported that more than 60 countries are studying ways in which to issue digital currencies. Guyana should not remain idle on such a fast-moving matter. India and China are extremely large and influential countries with billion-plus populations and surging economies. While the impact of these measures remains speculative, anything that would unseat the US dollar from its primary position in global finance would likely come from those large countries.

As for cryptocurrencies, they were unlikely to become a main medium of exchange in the near future due to their volatility (by contrast, the US dollar is far more stable, and most commodity prices around the world are given in USD.) Nonetheless, though the USD appears stable now, with China and other countries charging ahead with digital currencies, the pervasiveness and dominance of the USD could eventually diminish.