Deeponion as a major currency in digital banking and crypto currency is impact on bank balance sheet will surely be a force to recognize in crypto and financial analysts.
Digital currencies have gained popularity in the past 3years but the advent of Deeponion last year is a major boost to some part of the world such as Africa, Europe, Asia etc with technological advancement and day-to-day , as an eye opener to crypto world.
Deeponion has brought steady rose in exchange rate, albeit with high day -to -day volatility. Currently the Deeponion have introduced shopping with onion initiative which will enhance the value of it currency and its popularity whereas have effect on fiat currency and bank balance sheet.
Below are practical explanation on it effect and impact on banks.
Retail payments instruments is first illustrated assuming a shift from cash payment to credit card payment. In essence, this implies that household reduces their holdings of cash and increases their deposit with banks as credit card bills will be debited to their deposit accounts. The balance sheet of a commercial bank grows as their assets in form of vault cash as well as their liabilities in form of deposit increase. The balance sheet of the commercial bank is not affected immediately.
Once the commercial bank reduces their stock of vault cash back to the old level, they exchange the vault cash for deposit at the commercial bank. The size of the commercial bank does not change, but composition of its liabilities does.
There will be power banknotes in circulation, but the commercial deposit at the central bank increases. Since bank notes are not remunerated by commercial bank deposit are (at the deposit rate), profit or seignorage of the commercial bank will decrease. However, it is likely that the implementation of monetary policy will also requires a reduction of the commercial bank deposits backs to the previous level. This means the balance sheet of the bank contracts and so does seignorage.
With Deeponion as most futuristic digital currencies, the effects are somewhat more complex;
At the beginning, the value of digital currency is zero. Once trading of the digital currency is exchange for sovereign currency begins fully, there will be a positive market price or exchange rate. With Deeponion becoming more popular as a medium of exchange and also as a store of value, various asset substitutions take place. Households will reduce their cash holding as they will start to make some payments with Deeponions currency. This will have the same effects on organization. Seignorage or profit of the central bank will decrease.
Another adjustment may be that households will reduce their short-term deposits which they have used to pay for their expenses with credit cards or wire transfers. Also, they may choose to hold power securities as they view digital currency as a valuable asset class. With overall deposits shrinking, the demands for banks for central banks deposit is also likely to decline leading to a smaller bank balance sheet and thus less seignorage.
Hence, Onion keep listing on stock exchange in all corner of the world and its value keeps increase widely
