9 — Digital Payments and Financial Globalisation (Late 20th – Early 21st Century)

Part E — Digital and Decentralised Finance

The late 20th and early 21st centuries witnessed a technological transformation in money and finance, driven by the rise of digital payment systems, electronic banking, and global financial integration.

Economic Context

  • Rapid adoption of computers, telecommunications, and the internet enabled new forms of financial transactions.
  • Growing global trade and international capital flows required faster, safer, and more efficient payment methods.
  • Traditional cash and coin-based systems became insufficient for high-volume, cross-border commerce.

Key Innovations in Digital Payments

  1. Electronic Banking and Funds Transfer
    • Automated Teller Machines (ATMs): Became widely available from the 1960s, improving access to cash.
    • Electronic Funds Transfer (EFT): Enabled businesses and consumers to transfer money quickly via banks.
    • Online banking (1990s): Allowed account management, bill payments, and fund transfers through the internet.
  2. Digital Wallets and Online Payment Systems
    • PayPal (1998): Facilitated secure online payments, supporting e-commerce expansion.
    • Mobile banking and wallets: Systems like Apple Pay, Google Pay, and M-Pesa enabled transactions via smartphones.
    • Reduced reliance on physical currency and enabled cashless societies in certain regions.
  3. Global Financial Integration
    • Digital systems allowed instantaneous cross-border transactions.
    • Facilitated international trade, remittances, and investment flows.
    • Regulatory frameworks struggled to keep pace with technological and institutional innovation.

Economic and Social Impacts

  • Efficiency: Transactions became faster, safer, and more convenient.
  • Financial inclusion: Mobile wallets and online banking increased access to financial services in developing countries.
  • Innovation: Spurred the development of fintech startups and modern banking platforms.
  • Challenges:
    • Cybersecurity risks and fraud.
    • Regulatory gaps and money-laundering concerns.
    • Digital divide limiting access in certain populations.

Significance

  • Marked a shift from traditional banking to digital financial ecosystems.
  • Paved the way for cryptocurrencies, blockchain technology, and decentralised finance (DeFi).
  • Demonstrated that money is increasingly a social and technological construct, not solely a physical commodity.

References

  • Pistor, K. (2019). The Code of Capital: How the Law Creates Wealth and Inequality. Princeton: Princeton University Press.
  • Bank for International Settlements (2020). The Rise of Digital Payments. Basel: BIS.
  • Davies, G. (2016). A History of Money. Cardiff: University of Wales Press.
  • Goetzmann, W. N. (2016). Money Changes Everything: How Finance Made Civilization Possible. Princeton: Princeton University Press.
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