Banks, financial institutions unlikely to disappear despite disruption by digital assets

  • 16 July 2019, Tuesday, 12:40

The cryptocurrency landscape has always been closely scrutinized, with its cons highlighted by several lawmakers across the world. While conceptualized as a decentralized alternative to mainstream banking and financial institutions, cryptocurrencies today have emerged to become more than just a payment option. In fact, many view cryptocurrencies, especially Bitcoin, as a better store of value than traditional assets like gold. However, it still is a long way from replacing traditional banking institutions.

A recent research paper titled “The Rise of Digital Money,”was published on July 15 and reflected the bone of contention along the same lines. Authored by IMF writers Tobias Adrian and Tommaso Mancini-Griffoli, the paper studied the impact of, what is termed as “e-monies” on the banking sector.

“If e-monies took off because of their attractiveness as means of payment, backed by large big tech firms with large existing user bases—or nimble fintech start-ups—will that spell the demise of b-money and the banks behind them? Will retail bank deposits migrate to e-money providers in large amounts? Not so fast. In fact, banks are unlikely to disappear.”

The authors stated that the banking sector will feel pressure at the hands of e-money and should respond by providing attractive services and products. Referring to the criticism aimed at the Libra project, the IMF authors argued that “policymakers should be prepared for some disruption in the banking landscape.”

The paper drew two noteworthy scenarios. The first one being a continued tussle in a world where both “e-money” and “b-money” are co-existing. In this case, several banks will be able to adapt themselves and modify existing business models to accommodate the evolving tech. However, “some will be left behind no doubt,” the report said. The paper also stated that the ones evolving should be “quick” to do so.

The second scenario of e-money providers complementing commercial banks seems plausible to ramp-up the current systems. MoneyGram leveraging Ripple’s tech to drive efficiency in terms of cross-border payments is one such example.