The rapid growth and success of cryptocurrencies are causing a ruckus in the global banking system. Financial institutions are uncertain about their survival in the crypto-dominant world. The Basel Committee forewarned the global banking system that the magnifying digital currency industry is jeopardizing the economic and monetary balance.
The Basel Committee on Banking Supervision (BCBS), which manages the world banking system, was founded by The Governors of the Group of Ten Central Banks in 1974. This committee is responsible for inspecting the threats the world’s banks are exposed to and their vulnerability, especially regarding Digital Assets.
The committee released a public statement on March 13, emphasizing that real-world money, known as Fiat Currency, cannot be substituted by cryptocurrency. It also believes that these digital assets are trivial and that their medium of exchange is not feasible.
The statement outlined the threat faced by financial institutions, mainly due to the volatility of digital currencies. This risk factor includes an improbable spike in the currency’s price value. Besides volatility, the cryptocurrency industry is highly prone to fraud, hacks, liquidity, money laundering, and terror financing.
The Basel committee acknowledged that the banking sector’s association with cryptocurrencies and their industries is scant as of now. The committee, furthermore, recommended that the digital asset industry intensify its risk management conventions to secure itself 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 the banking sector facing unease regarding financial stability and the inflating risk factor are surging with the continuous development of the cryptocurrency trading platform and the launching of products allied with digital assets, although, in comparison, the crypto-asset market is smaller than 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 a decentralized mathematical-logical currency. It was not beneath the dominance of any individual command or permission.
As seen by the world, real-world money and monetary benefits are taken advantage of by government officials and 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 people and communities owning and accessing them. Regardless of its virtuous conviction and its volatility, the cryptocurrency platform is considered 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 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 known 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.
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 is dominant as an exchange platform mainly because its 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 concerned, for centuries, it used to fund the state, undermine the economy, loot private savings, eliminate people with no access, encourage financial dependency, and make violence possible on a unique scale.
Although major banks like JPMorgan Chase and Goldman Sachs are venturing into this blockchain technology and cryptocurrency world, it is a 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 are the industry’s rapidly improving status amidst the staunch and committed investment departments and 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 would collaborate to manage and lessen the danger associated with exposing 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.”
