“Digital Fiat Currency” is written in the header of Visa’s latest patent filing. The name says it all, Visa aims at digitizing fiat currencies, potentially in cooperation with central banks.

China’s digital Yuan may soon face serious competition: The Visa International Service Association has filed a patent with the US Patent and Trademark Office (USPTO) for the creation of a blockchain-based digital currency. 

The filing describes a system in which a centralized computer receives commands containing specific serial numbers and amounts of Fiat currencies. The computer would then remove these fiat currencies from circulation and transfer them to a blockchain. This way, fiat money could be converted into digital money.

Visa carries out about 100 million transactions every day. With the system described above, central banks, together with Visa, could create a digital currency system parallel to fiat currency systems. Although the patent does not specify who controls the “centralized computer,” the text says: “A central entity may be a central bank, which regulates a monetary supply.” 

Visa could go beyond a digital dollar and use the same system to digitize other currencies as well. This would, however, require the cooperation of the respective central banks, because whoever uses the system must be legally and operationally capable of taking fiat money out of circulation. 

After pulling out of Libra: Did Visa have a better idea?

The patent was filed on November 8, 2019, even though the filing was only published this week. The timing is remarkable, as Visa had dropped out of the Libra Association only a month before the patent filing. Libra is the Facebook-led organization that wants to create a stablecoin for global payments, including a dollar- and a euro-pegged stablecoin.

The patent on the digital dollar suggests that Visa will make its own efforts after leaving the Libra Association, even if the company plays down the importance of the patent: “Visa has a vast global team of inventors and innovators working on cutting edge payment technologies. Each year we seek patents for hundreds of new ideas,” says a Visa spokesperson. 

The private sector takes the lead

Despite Visa’s comments, they certainly didn’t register this patent for no reason. With Visa, a payment giant is now entering the arena of programmable central bank currencies.

And that’s a positive development, especially if Visa’s project will involve the leading central banks. Compared to Libra, which is again facing resistance from the ECB, Visa would have a much better chance of inventing the payment system of tomorrow.

It is also interesting to note that the ECB and the US Fed itself have done little to get a digital central bank currency off the ground. In contrast, the People’s Bank of China launched the digital Yuan last month. So, unlike China, Western governments are letting private companies take the lead.