Digital currencies could supersede bank accounts as low-interest rates make them increasingly obsolete.
That’s the view of Massimo Buonomo, the UN’s global blockchain expert, who added that digital currencies, particularly central bank digital currencies (CBDCs), could soon “eliminate the need for a bank account” altogether.
Speaking on an online panel discussing the future post-coronavirus global economic order on Thursday, Buonomo said banks and credit cards have long enjoyed a duopoly on digital payments, but the advent of digital currencies means users could sidestep them entirely.
Low-interest rates, enforced by central banks to encourage more borrowing, may expedite the process, he said, as they incentivize account holders to hunt for returns elsewhere. The Bank of England, for example, is actively reviewing taking interest rates into negative territory, meaning savers would pay the banks to hold money in their bank accounts. U.S. President Donald Trump recently pushed for negative rates, calling them a “gift.”
According to Buonomo, interest rates were the one remaining killer app for bank accounts. But they are in danger of becoming obsolete in the face of digital currencies, which can process electronic payments just as easily.
“Those who are going to suffer the most [from digital currencies] are the credit card processing companies and the banks because, in the current interest rate environment, your [only] advantage of having a bank account is that it enables digital payments,” he said.
Buonomo has been the UN’s resident expert on fintech and, latterly, blockchain and cryptocurrencies, for nearly 10 years. During his tenure, the international organization has begun a series of crypto-related initiatives, such as sending aid to Syria via Ethereum and enabling crypto donations for UNICEF.
On Thursday’s panel, Buonomo said banks remain vulnerable to hacks and, along with credit card companies, they add friction by charging transaction fees.
In contrast, digital currencies, “allow you to hold digital money, it lets you pay the bills, use the mobile phone without credit cards, with no fees to credit card processing companies and no fees to banks for money transfers,” he said.
Of course, there remain questions on what type of digital currency could replace the ubiquitous bank account. In a March interview with City AM, Buonomo argued bitcoin and ether, two public cryptocurrencies that enjoy widespread adoption, had a fighting chance in becoming alternatives to fiat currencies.
But on Thursday, he took a more measured approach, saying tech limitations and privacy implications mean most public blockchains are widely unsuited for a national digital currency. Regulators would need overarching control over the system, he said, and many public blockchains don’t have the throughput required.
Digital currencies issued by a central bank were the real alternative, Buonomo argued. The question is whether central banks rely on commercial banks to distribute money, just as the Digital Dollar Foundation proposed last week, or go more radical and issue funds to private citizens directly.
The “one-tier model” would be the “most disruptive,” he said, and just as feasible. Central banks could piggyback off the sophisticated social security systems that are widespread in the developed world to distribute currency to “those who need it most,” such as the disabled or the registered unemployed.
In a sense, social security systems could become the issuance model for the central banks, Buonomo suggested.