Digital currencies could surpass bank accounts as low-interest rates (or negative interest rates) make them increasingly obsolete.
That’s the view of Massimo Buonomo, the UN’s global blockchain expert, who added that digital currencies, particularly central bank digital currencies (CBDCs), could soon “eliminate the need for a bank account” altogether. Buonomo has been the UN’s resident expert on fintech and, latterly, blockchain and cryptocurrencies, for nearly 10 years.
Low or negative interest rates in banks
Speaking on an online panel discussing the future post-coronavirus global economic, Buonomo said banks and credit cards have long enjoyed a duopoly on digital payments, but the advent of digital currencies means users could sidestep them entirely.
Low-interest rates, enforced by central banks to encourage more borrowing, may expedite the process, he said, as they incentivize account holders to hunt for returns elsewhere.
The Bank of England, for example, is actively reviewing taking interest rates into negative territory, meaning savers would pay the banks to hold money in their bank accounts. U.S. President Donald Trump recently pushed for negative rates, calling them a “gift.”
Digital currencies could replace bank accounts and credit cards
According to Buonomo, interest rates were the one remaining killer app for bank accounts. But they are in danger of becoming obsolete in the face of digital currencies, which can process electronic payments just as easily.
“Those who are going to suffer the most [from digital currencies] are the credit card processing companies and the banks because, in the current interest rate environment, your [only] advantage of having a bank account is that it enables digital payments,” he said.
Banks are vulnerable to hacks
Buonomo said banks remain vulnerable to hacks and, along with credit card companies, they add friction by charging transaction fees.
In contrast, digital currencies, “allow you to hold digital money, it lets you pay the bills, use the mobile phone without credit cards, with no fees to credit card processing companies and no fees to banks for money transfers,” he said.
Of course, there remain questions on what type of digital currency could replace the ubiquitous bank account. Buonomo said that tech limitations and privacy implications mean most public blockchains are widely unsuited for a national digital currency.
Digital currencies issued by a central bank were the real alternative, Buonomo argued. The question is whether central banks rely on commercial banks to distribute money, just as the Digital Dollar Foundation proposed last week, or go more radical and issue funds to private citizens directly.
So if CBDCs become the new norm and replace cash, there is another alternative for investment and / or saving and / or payments and that is the use of insured digital currencies that are not under the control of any government and thus are beyond the limitations of national currencies.