Before I begin to expand on my article’s title, I feel it is important to define few terms so everyone can understand when we talk about banks and the blockchain.
What is the definition of ‘Bank’ in financial terms, according to Investopedia
‘A bank is a financial institution licensed to receive deposits and make loans. Banks may also provide financial services, such as wealth management, currency exchange and safe deposit boxes. There are two types of banks: commercial/retail banks and investment banks. In most countries, banks are regulated by the national government or central bank.’
Further breaking down the definition of ‘Bank’, there are few types or classifications of the term ‘bank’
‘Commercial banks are typically concerned with managing withdrawals and receiving deposits as well as supplying short-term loans to individuals and small businesses. Consumers primarily use these banks for basic checking and savings accounts, certificates of deposit (CDs) and home mortgages. Examples of commercial banks include JPMorgan Chase & Company and Bank of America Corporation.’
‘Investment banks focus on providing corporate clients with services such as underwriting and assisting with merger and acquisition (M&A) activity. Morgan Stanley and Goldman Sachs Group Inc. are examples of U.S. investment banks.’
‘Central banks are chiefly responsible for currency stability, controlling inflation and monetary policy and overseeing money supply. Several of the world’s major central banks include the U.S. Federal Reserve Bank, the European Central Bank, the Bank of England, the Bank of Japan, the Swiss National Bank and the People’s Bank of China.’
While many banks have both a brick-and-mortar and online presence, some banks have only an online presence. Online-only banks often offer consumers higher interest rates and lower fees. Convenience, interest rates and fees are the driving factors in consumers’ decisions of which bank to do business with. As an alternative to banks, consumers can opt to use a credit union.
And this the future definition of ‘bank’
It does not take a genius or merlin the magician to understand the inherent survival instinct surrounding Central banks. After all they have been around in one form or another for millennium.
So it’s only natural that Governments will be persuaded by central bankers to begin the transition from digital currency to crypto currency. I do not mean everyone gets bitcoin or some other scheme like stellar. I mean national cryptocurrencies. This subject warrants a lengthy discussion but I won’t digress, I will stay on the periphery of the central banks.
The influence of Central banks in Sweden and a number of G20 countries, as they move towards tokenizing their fiat currencies, will be the cusp of a huge transformation of the global financial system can be seen today. It is not an ‘if’ but a ‘when’.
As nations begin to see the bleak forecasts of runaway monetary policy, decline to economic prosperity and continual abuse of financial instruments, there has to be an assumed feeling that the existing system may inevitably collapse so as one system ceases to function properly, it crashes and then either is rebuilt or start anew or with system 2.0.
When we are talking about systems as large as the global financial system it is the kind of thinking that keeps many people wide awake at night. In terms of blockchain and cryptocurrency, there has been an endless circulating ideology that Bitcoin or a similar decentralised technology is going to come along and replace the old fiat system and in some respect that is correct, just like the horse and buggy was replaced by the horseless carriage and ultimately by the automobile.
It is a myth that Bitcoin can replace a global financial system: bitcoin cannot by a long-shot handle the transaction load. Even with Lightning network fully implemented, it is highly unlikely that Bitcoin will prove a worthy contender for a global currency. Its energy footprint alone is not worth the bother. But if we see how the SDR works in a basket of currencies, we can see the model where national currencies can play that role with traditional cryptocurrencies keep doing what they do best. Give people personal choices.
Central banks see the writing on the wall, that Blockchain decentralized ledger technology could very well create a mechanism by which the global financial system can evolve to meet the needs of our civilisation going forward. By tokenizing fiat currency, using the central bank institutions, while keeping the wide diversity of crypto coins in operation, we allow ourselves an enormous amount of flexibility in developing solutions to complex problems.
Innovation is already filtering down to consumers with app based blockchain banking, smartphone payments and much more. Moving money around is now cheaper and more of a real-time experience. But how much do we want to rely on these private corporations as the main gatekeepers to the sovereign currencies we rely on for everyday value transfer?
The Swedish Central Bank, The Riksbank, has published its plans for an e-krona digital currency citing the decline in the use of cash as the main reason. In addition to this, the Riksbank states:
“Private agents may determine the access to central bank money and payment methods. In addition to the Riksbank’s obligation to supply cash, the starting point for this project is the Riksbank’s task of maintaining price stability and promoting a safe and efficient payment system in a new digital environment.”
One of the major roles of central banks and regulators is to make sure consumers and retail investors are well looked after. If the means by which they create and circulate money is outmoded by innovative entrepreneurs then the system becomes vulnerable and subject to being gamed. The counter-factual is that we are being gamed by the central bankers who manipulate currency in the favour of banking elites. Even so, we need stability and innovation. The two together, from the public and private, allow for humanity to move forward in a managed way.
Head of Blockchain solutions for IBM, Jesse Lund, has recently claimed to have met with 20 central banks that include Europe, China, Russia and the US, who are looking at tokenizing their currencies. Lund is confident we’ll see at least one make a move this year, and with Stellar being the current IBM partner that is way ahead in low cost, high-speed, cross-border transactions, it seems that these kinds of “leaks” hint at something exciting behind the scenes at work.
The Stellar system hopes to attract investors who can put up money for anchors that provide liquidity for cross-border transfers. But that is a losing battle, its the horse and buggy analogy, based on historical facts, hardly any horse and buggy makers begun to make automobiles, they all faded away, Stellar is the ‘horseless carriage” of the banking industry, If we consider the anchor to banking is a central bank, well… then Blockchain Banks are the early Model Ts’ of our times.
All of this gives us a glimpse of a post-bitcoin, post crypto-mining centric model that large public and private organisations are developing. It also shows us that we are at the beginning of a new game-changing fintech landscape where innovators will be at the helm of designing a much needed brave new world!
At the end of the day… you have to ask yourself few important questions
- Would you keep your national decentralized money in an exchange like Kraken or Coinbase?
- Where will you safely keep it, With a Bank?
- Which Bank? A Horse-and-Buggy bank?
 Swedish Riksbank whitepaper: https://www.riksbank.se/globalassets/media/rapporter/e-krona/2017/handlingsplan_ekrona_171221_eng.pdf
 IBM is finally getting serious about cryptocurrency: https://www.coindesk.com/ibm-evolution-big-blue-finally-getting-serious-cryptocurrency/