In June 2016, central bankers from 90 countries along with IMF, the World Bank and Bank of International settlers met behind closed doors in Washington to discuss how the use of disruptive technology, the likes of digital currencies (cryptocurrencies), will transform the financial industry. Fintech / Blockchain technology is expected to disrupt the banking sector in all areas of operation such IT services, digitisation of processes and products being affected, with even talk of Central Banks considering issuing digital currency themselves. In fact, scientists at Yale have proposed the idea of a FedCoin for taxes and distribution of social security. FedCoin would give the government of the day the God-like ability to track wealth. The justification being to prevent criminal activities such as drug dealing and money laundering.
Today, the transformation of the financial system is, according to various financial industrial studies, upon us with Blockchain technology expected to overwhelm the existing banking system. The future of digital currency is in the ascendancy, as shown by studies conducted by central banks, many financial institutions exploring its use, could FedCoin become a reality.
Currently, studies show there is a greater acceptance by consumers to use digital currency (cryptocurrency) and with more brands accepting digital currencies and more consumers opening eWallets the day is not far off when hard cash will no longer be necessary. Bad for the banks, you might think. Clearly not, as the Bank of England (BoE) concluded that a BoE cryptocurrency could boost GDP by 3%.
At present, FedCoin looks far off due to the massive disruption it will cause, because cryptocurrencies could, according to JP Morgan Analysts, “Endanger the economically and socially important financial intermediation function of commercial banks”. The future of cryptocurrency depends entirely on how individual governments perceive them to be, a blessing or a curse as it were.
Sen. Mark Warner, D-Va., who earned his wealth as an early investor in the smartphone industry, stated that he “sees a parallel between mobile phones and cryptocurrencies now”, he said “the same kind of transformation is about to take place,”. With that statement in mind, it would be wise for Central Banks and Financial Institutions to pay heed to the transformational changes that Blockchain technologies and the cryptocurrencies will have on their industries and their margins.
As they say a new broom sweeps clean . . .
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Writer: Farhang Maghdeed