Central bank digital currencies (CBDCs) are being researched, developed and trialled by countries across the world. All at different stages of this process. The central bank would interact with each wallet holder individually, so banks are cut out of their middle man role.
The future for retail banks is being put into question. They have always been the interface between the individual and the financial system up until now, and banks have generally done extremely well out of it.
However, times are changing, and banks will need to find themselves other areas of income or die, as their traditional role is taken away from them.
It seems rather odd that banks should be thinking of looking at crypto as a way out of their dilemma. Over the last few years, since the launch of the Bitcoin Network, banks and their leaders have ignored, then laughed at crypto, and have then slung insults, and finally have issued warning after warning to their customers about the dangers of investing in cryptocurrencies.
The chickens have come home to roost. The bank’s customers want exposure to cryptocurrencies, and the traditional financial system that banks always believed they would be a part of, looks to be cutting them loose as central bank digital currencies make them obsolete.
EY, the big accounting firm, recently published its 2022 report on its view of the global regulatory outlook. It recommended that banks should “change their regulatory perimeter” in order to account for the issue of CBDCs and also stablecoins.
The report highlighted how digital assets such as CBDCs and cryptocurrencies were entering into the mainstream, and that banks would need to keep a close eye on how regulation would look to play out - especially with regard to the very uncertain cryptocurrency landscape.
The following quote from the report should set the alarm bells off, if they wouldn’t already ringing for the banks:
“If customers can keep their money with a central bank, they have no need for a retail bank, and firms will see their interest rate margins contract precipitously.”
The Bahamas central bank has already launched its CBDC, and other jurisdictions such as China are far advanced down the same path. The Bank for International Settlements (BIS) has suggested that an international framework for these assets could be introduced as early as next year.
The EY report stated:
“The macroprudential or international implications of a major currency having a retail coin could be very significant for retail banks and the dollarization of smaller economies. For that reason, most central banks are likely to pursue a wholesale version.”
If the banks cannot move fast and work out how they can play a part in the interaction between CBDCs, cryptocurrencies and stablecoins, then the writing could well be on the wall for them.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.