The rapid growth and success of the cryptocurrencies are causing a ruckus amidst the global banking system. The financial institutions are uncertain about their survival in the crypto dominant world. The Basel committee forewarned the global banking system that the magnifying digital currencies industry is putting the economic and monetary balance under jeopardy.
The Basel Committee on Banking Supervision (BCBS) that manages the world banking system was founded by The Governors of the Group of Ten Central Banks in the year 1974. This committee is responsible for the inspection of the threats the world’s banks are exposed to and their vulnerability especially in regards to the Digital Assets.
The committee released a public statement on March 13 which emphasized that the real world money known as Fiat Currency cannot be substituted by the cryptocurrency. It also believes that these digital assets are trivial and their medium of exchange is not feasible. The statement outlined the threat faced by financial institutions, mainly due to the volatility of the digital currencies. This risk factor includes the improbable spike in the price value of the currency. Besides volatility, the cryptocurrency industry is highly prone to frauds, hacks, liquidity, money laundering, and terror financing.
The Basel committee acknowledged the association of banking sector with the cryptocurrencies and their industries is scanty as of now. The committee, furthermore, recommended the digital asset industry to intensify its risk management conventions to secure themselves from the outcome of the rapid and unpredictable change in prices.
The announcement expressed the views of the Basel committee. It stated that the prospects of banking sector facing unease with regards to the financial stability and the inflating risk factor is surging with the continuous development in the cryptocurrency trading platform and launching of products allied with the digital assets, although, in comparison, the crypto-asset market is smaller to the global banking system.
On the other hand, the concept of cryptocurrency was introduced to substitute fiat currency and the global banking world, not just to be rivals. The crypto major – Bitcoin (BTC), was produced as decentralized mathematical-logical currency. It was not beneath the dominance of any individual command or permission.
As seen by the world, the real world money and the monetary benefits are taken advantage of by the government officials and the aristocrats, who focus primarily on monopolizing capital. The government prints the money controls and its supplies, and there are guidelines designated to the unofficial currency. The other downside is the revenue stuck in the banking sectors. Bitcoin activists termed digital currency technology as a savior against the corrupt banking system. Because, contradicting the fiat currencies are the cryptocurrencies, whose industry is completely decentralized with more number of people and community owning it and accessing it. Regardless of its virtuous conviction and its volatility, the cryptocurrency platform is considered as another substantial investment. From the committee’s viewpoint, the cryptocurrency industry is conjecture and supposition without firm evidence. Although the industry is not driven by the arbitrage, the committee does not believe otherwise. Their notion is strong and opinionated due to the unpredictable and unbalanced guidelines of the industry, in addition to volatility.
Banks are primarily required for three main purposes – safe storage of money also knows as warehousing, loan function or fractional reserve banking and the clearing system where the system resolves all transactions and certifies that the assurance has been kept. The cryptocurrency has sorted out these main purposes of the financial sector in its own way. The launched cryptocurrencies have basic attributes such as safe and secure storage, transactions, no financial panic with real money, weightless, less physical space, the introduction of the blockchain technology is the boon to the crypto world. Cryptocurrency as an exchange platform is dominant mainly because the value is not pegged to any nationalized currency. It has no value as a material or as an asset. Its value lies in the service provided by the cloud-based distributed ledger – the blockchain.
As far as the opinion about the banking sector was considered, for centuries, it used to fund the state, undermine the economy, loot private savings, eliminates people with no access, encourage financial dependency and makes violence possible in unique scale. Although major banks like JPMorgan Chase and Goldman Sachs are venturing in this blockchain technology and cryptocurrency world, it is little too low and late with the large scale striving to reproduce the distributed ledger.
The various factors that raise huge speculation in the committee, is the industry’s rapidly improving status amidst the staunch and committed investment departments, its blazing demand despite its volatility and negligent principles and rules. The committee firmly believes that these attributes would pose a menace to the very core of the global banking system.
The Basel committee and the Financial Stability Board together would be engaged in handling and lessening the danger that comes with the subjection of these digital assets to the entire financial and investment sector. The Basel committee’s final statement stated that “Eventually, the committee would work towards simplifying the wise behavior on its subjection and would exhibit the soaring magnitude of peril associated with the digital assets.”