Scopes Of Bitcoin Network Growth In Eyes Of Centralized Banks
There is a fair obvious reason to believe that the digital era for Bitcoin may be taking an aim at the central banks. This fact might hit right on the sentiments of an orthodox economist.
Turning to the venerable reference, central banking can be traced back to Barcelona Spain in 1401. The first ever central bank and the ones that succeeded in its wake often helped nation fun wars and other government-supported initiatives.
The hypothesis says that these central banks could switch from issuing money in the form of cash (or those values that have a dollar sign next to it,) to releasing digital currency and registering the transactions on a distributed ledger along the lines of the Bitcoin blockchain. This could be a good news or a bad news to people of concern, depending on their point of view.
If this above hypothesis were to come to pass, it’s basically a goodbye to all the banks. Bitcoin system doesn’t require much of an advance investment, and so the central bank will be able to accept deposits from citizens and hence providing them the safest place for storing their hard earned savings. This, in turn, makes private banks, and their small percentage of deposit reserves and the risk of runs, unnecessary.
In such a hypothetical world, people wouldn’t depend on the bank for their salaries or to buy food from stores etc. Rather they would use their central bank accounts and smartphones for this purpose.
In a desperate attempt, the banks would still try to lure or attract deposits by offering higher interest rate or other appealing incentives, and to an extent the banks will be able to obtain money to give out on open markets, but their business would be extremely risky and hence it would target clients who have high tolerance for taking risks. Also, borrowing will become more expensive.
The idea, that these derided banking industries will be detached from our general needs are left to mine or search for a business like any other non-essential industries, can be nice to imagine.
Though, we can’t ignore the fact that our transaction histories would be more open to the government than they are now. But then again it’s still okay and it will keep a check on black money laundering.
This above imaginary scenario of a world which effectively handles money is a matter which is being seriously talked about amongst the central bankers and researchers.
Max Raskin, a lawyer, and David Yermack, an economist, both from New York University, talks about this imaginary world, as a clear cut possibility, though a potentially progressive one that “carries significant risks for the rest of the financial system”
This idea has a huge issue and which is flagged as a technical problem. Raskin is a lawyer and Yermack is an economist, and as Broadbent said in his speech, “goodness knows that there are people who knows more about computers than I do.” Still, the matter of whether this blockchain, the bitcoin method of efficiently validating transactions and creating the distributed ledger, can coexist is a matter for engineers.