IS CRYPTO A THREAT TO FINANCIAL SECTOR?

Revolution in the global financial sector

For over ten years, the world started to focus on developing virtual currencies. Everything seemed to be improving, but an aspect remained. The heads of central banks are the top monetary regulator in countries in nearly any part of the world. It is illogical to doubt it, particularly given the strength it represents.

However, we must ask ourselves today: why have banks seen Cryptocurrencies as a threat? To find the answer, we grounded ourselves on fact, so we gathered some bank statements to review their reactions. Here are several bank statements on Bitcoin which confirms that Cryptocurrency is a challenge to global financial systems:

• February 2018: “According to the head of the Bank for International Settlements, to prevent Cryptocurrencies from being embedded and undermining confidence in central banks, central banks must be prepared to take action.”
• June 2018: “The Financial Conduct Authority (FCA) has released a Dear CEO letter sent to banks by Jonathan Davidson and Megan Butler, the FCA’s Executive Directors of Supervision for Banking and Certification and Acquisition, Wholesale, and Specialists, respectively, about best practice for companies on how to manage the financial challenges faced by Cryptoassets.”
• CNBC, January 2018: It seems that there are privacy concerns in the United States. According to Jerome Powell, there are “meaningful technological problems” and “privacy questions.” Furthermore, he said that a central bank-issued digital currency “could stifle innovation in the long run” because it will clash with advancements in federal payments technologies and private-sector innovations.
• January 2018: A Bitcoinist is someone who believes in Bitcoin. François Villeroy de Galhau, Governor of the Bank of France, urged restraint because “Bitcoin is not an asset or even a Cryptocurrency.” It is a risky investment. Its worth and excessive uncertainty have no economic foundation, and nobody is responsible for them.”
• Coin Desk, May 2018: Luis Maria Linde, Governor of the Bank of Spain, said that Cryptocurrencies “face more risks than benefits.” [Cryptocurrencies] “have low adoption as a form of payment, experience significant instability, present many organizational vulnerabilities, and in many cases have been linked to illegal or criminal activities.”

What risks have Cryptocurrencies posed to global financial sectors?

Perhaps learning about Cryptocurrency frightens central banks. However, when we discuss blockchain technologies, this topic will often shift. There have been so many different responses from countries worldwide that it is impossible to sum them up with a single expression.

We have shown that some financial world figures, such as the Bank of England Governor, have taken a cautious view to Blockchain technologies, seeing Cryptocurrency as part of a possible “revolution” of finance. In Brazil, for example, the central bank believes that “an imminent danger to the Brazilian financial system exists.”

However, the majority of people see the world of digital currency as a challenge. Why are they afraid of Cryptocurrencies?

1. It has the potential to eliminate money.

2. It will serve as a front for money laundering and terrorist funding.

3. It parasitizes actual currencies and jeopardizes financial stability.

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