Will Digital Currencies affect Banks?

The widely noted rise of bitcoin and other digital currencies could have profound impacts on financial systems and on the practices of the central banks.  Will paper currency finally become obsolete? Will bitcoin and its siblings replace the dollar or the euro or the yen? Should central banks issue their own e-currencies? What opportunities do digital currencies present? What risks?

Digital and cryptocurrencies are rapidly changing the nature of money itself. Digital currencies issued by central banks will have big implications for the financial sector and how banks make money. A proliferation of new currencies could also threaten the stability of the financial system.

The rise of digital currencies could lead to a flood of withdrawals from high-street banks, risking financial stability and the wider economy, the Bank of England has warned.

Threadneedle Street said that stablecoins – a new form of digital asset usually pegged to the value of a traditional currency – would need to be regulated in the same way as payments handled by banks if they became widely available.

Cryptocurrencies like Bitcoin have been billed as a major disruptor to finance. But digital currencies issued by governments might be even more radical—they may even threaten the future of traditional banking.

 

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