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The cryptocurrency threat

26 February 2018

Every year, New Zealand banks make billions of dollars in profit from the daily transactions, savings and borrowing of Kiwis.

It's hard to believe just how much money we pay, simply for the convenience of having someone process our transactions, lend us the money to buy our houses and safely store our nest-eggs.

It is very interesting to contemplate what would happen if cryptocurrency actually took hold and usurped good old cash, plastic and the hugely profitable services offered by these banks. Do you think they would simply accept the massive loss of business this might produce -- or would we find them lobbying governments to impose bans or some other form of control that mandated having a bank in the loop somehow?

To be honest, I think there are more than a few people within the upper echelons of the banking sector who are wearing a frown right now.

Imagine that you could buy stuff, store your savings or receive and send money without the hassles of dealing with a bank and paying them a premium for the privilege.

Even better, there'd be no need to deal with some anonymous figure, often in a city far from the place where you live, just in order to get something done.

No standing in line waiting for the next available teller.

No more annual card fees or other regular donations to the bank-chairman's annual bonus.

Sounds great doesn't it?

As an added bonus, no more ability for the bank to monitor your transactions and try to sell you insurance or some other service just because they've spotted you've made a major purchase recently.

Now you might think that this would place your money at greater risk, if you were to forsake the banking system and place your trust in cryptocurrency -- but you could be wrong.

A little known aspect of NZ's banking law means that your deposits with the bank aren't necessarily safe from loss. I believe there's a provision that if a bank is short of money, they can effectively stop you from withdrawing most of the money you have on deposit with them -- and instead, use that money to pay their own bills, in an attempt to remain liquid.

Yes, when you hand over that money, you accept that you may not have access to it in the way you'd think.

By comparison, an established cryptocurrency could provide far greater security than the established banking system because nobody can spend your money except you (assuming you don't give away the keys to your crypto-locker through negligence or stupidity).

Of course government could become very concerned about the potential for a "black economy" to harness cryptocurrency and avoid detection, thereby sidestepping their tax obligations and that is a very real consideration. However, just look at the way that multinational corporations presently sidestep their true tax obligations through profit-shifting and you'll see that the government ought to be addressing the real problems before they spend too much time pondering the "what-ifs".

So, if/when cryptocurrency establishes itself as a very real, trustworthy and credible way to shift money around outside of the traditional banking system, I expect to see strong lobbying from the banks aimed at government. They'll demand that cryptocurrency be regulated and controlled (by the banks) in some way, shape or form.

Unfortunately, unless the governments of the day simply outlaw cryptocurrency, there's probably nothing they can really do to control this challenge to the banks (yay!). However, given the stupidity of your average bureaucrat and politician, I dare say that the impossibility of nailing jelly to a tree will not stop them from attempting such folly.

Could the legitimisation of cryptocurrency be one of the world's economic and technological watershed moments?

Might this force an entire re-think of the way the world's economies are managed?

May we eventually see banks become little more than just another group of finance companies whose only role is to lend money to borrowers?

What do readers think?

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