Bank accounts could become unnecessary within the next decade because central banks will create digital currencies and allow customers to hold deposits directly with them, predicts Greg Medcraft, chairman of the Australian Securities and Investments Commission.
The issuance by central banks of digital versions of their fiat currencies onto distributed ledgers would lead to widespread disaggregation for commercial banks, which would be forced to fight much harder to attract funding alongside market-based funds in a radical upheaval of financial markets.
Banks and policy makers should be studying the ramifications for the Australian economy given central bank-issued digital currencies could start to appear globally in the next five to 10 years, he added.
In Australia “there is a lack of lateral thinking. You can’t think in terms of the ways things are done today. If we want to be proactive and forward looking, we need to be thinking about digital currencies,” Mr Medcraft told The Australian Financial Review.
Bitcoin was designed to circumvent banking.
“The smart banks get it and are reshaping what they do, but they know they are probably living on borrowed time. I think you will see a disaggregation of the banking model down to a narrow banking model.
“With central-bank issued digital currencies, you might not need a bank account anymore.”
There is an irony in central banks thinking about cryptocurrencies given Bitcoin was created to circumvent central banks and governments through its peer-to-peer payments system validated by raw computer power rather than a trusted intermediary.
Banks already have exchange settlement accounts with central bank; in the future, central banks could extend these to everyday transaction accounts for the population. Central banks already issue digital money as reserve balances only exist in electronic form, but the liabilities of the central bank could widen in the future.
Commercial banks would have to entice savers to shift their funds from the central bank to commercial bank deposits, and would compete against markets-based credit funds doing the same. Banks could be forced to pay more to attract deposits from a more limited funding pool. Customers could alternatively put their funds with technology companies providing savings options.
The prospect of depositing funds with the central bank directly is “pretty attractive [for customers] because you won’t have to deal with a bank ever again,” said Mr Medcraft, who is a member of a high-level group advising International Monetary Fund president Christine Lagarde on fintech.
“Banks will have to attract people to lend to them. They lose free money provided by transaction accounts.”
“I think is it going to become a new model. What does it mean? It means you no longer need to have a bank account to transact.
“Banks’ central role in payments system will one day disappear. There will come a time when if you want to transact, you won’t need a …
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