Cryptocurrencies have emerged as a new way of carrying out financial transactions, especially in the US. The banking sector in the US has decided to embrace this unique piece of technology. Recently, the Currency (OCC) office Controller provided a way forward for this to be possible. Banks now have a bigger incentive to offer custodial services to cryptocurrency businesses.
Banks can now provide their services to businesses that receive payment in cryptocurrencies- in a better way. Note that in the recent past, the banking sector has been hesitant when dealing with cryptocurrencies. Of course, the latest technology has an element of high risk embedded. Regardless, banks such as JP Morgan Stanley have gone ahead of the curve and created their digital currency (the JPM coin). Also, the bank has made Onyx an entity designed to compartmentalize its digital currency. Cryptocurrency acceptance in the banking sector is multiplying, and this presents abundant opportunities for the future.
Cryptocurrencies will undoubtedly add to today's banking trend of paperless cash, which couldn't have come at a better time. Many businesses are now accepting bitcoin as a payment method. It only makes sense that banks should put in place measures to make this possible. However, banks will have to come up with stable coins to capitalize on this new technology.
Stablecoins will be better in terms of volatility, which has been a risk factor for Bitcoin. The creation of these stable coins will have massive implications for the financial sector. Insurance protection by businesses will skyrocket since many companies want to protect themselves from risks. As initial coin offerings(ICO) become a part of today's businesses, banks should ensure they have the necessary infrastructure to receive cryptocurrency capital for companies.
Many banking institutions still fear government-backed currency might become devalued because of cryptocurrencies. This fear does not hold any truth, as many people still prefer the US dollar. Notably, cryptocurrency infrastructure processes fewer transactions than the regular dollar. These transactions present a challenge for digital currencies. As banks integrate digital currency into their services, transaction speeds will surely increase.
But-ironically- cryptocurrency transactions have an element of transparency. Customers can have a peek into how the digital currencies move, which could be significant for banks. Most banking transactions involve secrecy. Also, the banking sector will gain customers' trust more, as they will see how their money moves. Digital currency has also provided credit to people with no bank accounts. Internet access is certainly more prevalent in the US. The credit provision has enabled more people to be able to purchase and trade in cryptocurrencies. More people will be able to access credit and loans based on their E-wallets balances.
Wha else? Transaction fees for banks will become a subject of contention, as cryptocurrency transactions do not have transaction fees. Banks will have to develop a mechanism enabling them to make a profit. As more businesses integrate digital currencies into their operations, banks will have to develop ways to profit without losing their customers' trust.
International trade has the convenience of cryptocurrencies, and the banking sector has seen a considerable rise in profits due to this development. Banking institutions that offer stable coins will significantly benefit. Moreover, eCommerce in the US has risen massively to 44%, especially with the Covid 19 lockdowns. Digital currencies have enabled most people to make purchases faster using bitcoin. It has, therefore, become imperative for the banking sector to facilitate this trade.
We must note that even as the banking sector embraces digital currencies, there is a need for special regulatory measures to be put in place. The proposed digital currency regulatory bill (STABLE Act) contains measures to ensure that banks' digital currency is consumer-protective. In the new proposal, banks with stable coins will have to possess a bank charter to give the stable coin. Further, banks that offer a stable coin are required to inform the Federal Reserve and other relevant banking agencies six months before unrolling the stable coins. They must also obtain insurance from the Federal Deposit Insurance Corporation (FDIC). This insurance is to facilitate liquidity on demand of the stable coins.
Ultimately, electronic savings will increase as more digital currencies get integrated by banks. Banks will be able to access more cash for lending. The overall US economy will improve as more investments by these banks become a reality. Also, interest accrued by such savings will give customers increased income on their electronic savings. Immediate liquidity will become easier for these banks in case of massive withdrawals by customers. Eventually, the banking sector in the US will become significantly more efficient; that's most encouraging.