Banking on the Crypto Factor
“The surge in cryptocurrencies and their underlying technology is becoming too big for central banks, long the custodian of official money to ignore”, states Patrick J O Brien.
Earlier this year Norway’s largest online-only bank, Skandiabanken announced it plans to offer clients the ability to link bank accounts to cryptocurrency holdings. While some saw this move as one of traditional banks embracing bitcoin, really what it did, was herald a new shift in the evolution of cryptocurrency into the greater fintech space. The banks intention was to let users connect a bank account with a Coinbase account, allowing users to view their cryptocurrency balances within the banking app.
Around the world, mobile banking is taking a lead over branch-centred activity. In Malta, for example, over 80% of the population access online banking sites and that number is growing. The proliferation of fintech services that ‘unbundle’ traditional banking functions, combined with the maturing of the internet-first generation, are accelerating this trend. What’s more, the European Revised Payment Services Directive (PSD2) activates in 2018. This directive will mandate that banks have to share customer data with third parties through APIs, which could include access to cryptocurrency services.
The Dutch central bank has already created its own cryptocurrency for internal circulation, to better understand how it works. Cryptocurrency tied to central-bank-backed money could give governments a way to issue digital tokens that are a lot like cash. Users of such a “FedCoin” would enjoy the level of anonymity that Bitcoin provides, while being protected against the volatility that has so called plagued cryptocurrencies. Many countries’ central banks are investigating this idea, but again it seems that’s it’s the Nordic countries to be the furthest along.
Speaking in Brussel earlier this year, Prime Minister Joseph Muscat argued that governments in the European Union should “double down” on the tech, which he pointed out is slowly catching on amongst the bloc’s financial institutions. The PM’s remarks were in the context of reinvigorating the EU, which has faced rising socio-economic pressures in recent years. He also proposed that leaders in the bloc create financial mechanisms to invest in areas that may be inclined to leave the EU, as was with the case of the UK’s so-called “Brexit” vote last year. Though prefacing his statements by saying that he is opting to advocate for “outright insane” sounding ideas, Muscat argued that “the rise of cryptocurrencies can be slowed but cannot be stopped”.
As cash becomes more and more rare, central banks may begin to think about how they can minimize systemic risks from their own unintentional and unseen miscalculations or misjudgements which can have considerable effects on the economy to the point of bringing it to even bankruptcy. With blockchain based cryptocurrencies being a potential solution to return some balance between the private free market and the centralized planners so as to avoid a single point of system wide failure. As of now, however, it’s not clear which country might show such foresight but Malta’s sandbox test appears interesting, not least because they recently announced the education ministry was to issue academic certificates through the blockchain technology, a world first at state levels. Read more about Bitcoins in Malta.
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