The evolution of digital currency seems to follow the way physical currency was born. Back when gold was used to make payments, the burden of transporting them paved the way for gold merchants in the UK to issue paper money or “exchange notes” as one’s “proof of funds” – thus creating the physical currency.
This resulted to private banks issuing currencies in its own name, a move that caused an increase in inflation due to the overprinting of currency as each bank strived to better its profits. The British government resolved the issue by mandating a single bank to solely issue one national currency – an effort that gave birth to the central bank.
Currently, large international banks are issuing their own cryptocurrencies as a way to keep up with the “digital” times. Would digital currencies go the way of how physical currencies eventually became centralized? According to the world’s leading geopolitical intelligence platform, Stratfor Worldview, once central banks issue their own digital currency, commercial lenders’ business model could be threatened as investors would prefer transacting with the central bank’s “balance sheet” since its funds are guaranteed by the national government.
Currently, digital payment transactions go through a private bank, and to the central bank, after which it goes to another private bank. If digital payments are implemented by central banks, the need for a third party institution such as a commercial bank is eliminated thus speeding the entire digital payment process while also decreasing transaction costs. In the near future, once central banks begin rolling out their own centralized digital currency, commercial banks could be forced to be very competitive in their lending practice. So far, such a scenario is far from the horizon as the below top three big banks have decided to make their own cryptocurrency.
1. Mitsubishi UFJ Financial Group (MUFG) of Japan to test its own MUFG coin
2019 is the scheduled year MUFG will test a cryptocurrency of its own making. According to Japan news media outlet NHK, the fifth largest bank in the world (MUFG) will conduct a digital currency test phase on the soon-to-be-launched MUFG Coin – an effort that will include 100,000 account holders. If the project pushes through, MUFG will be the first bank in Japan to ever issue one.
The coin’s goal is to provide “currency functionality”. One MUFG coin will be equal to one yen. Customers will need to download an application that will convert their deposits automatically. The coin will eventually be used to make payments in shops, stores, and restaurants. It can also “transfer the currency to the accounts of other participants.”
2. The central bank of Norway will develop its own digital currency
Norges Bank, Norway’s central bank, will launch its own digital currency according to its official published document, the Norges Bank Papers. The Scandinavian country aims to use the cryptocurrency as a medium of exchange and “ensure confidence in money and the monetary system.” The planned Central Bank Digital Currency (CBDC) will also function as a “supplement to cash”, e-payment tool, and a way to make bank deposits. The bank is set to issue a digital currency if the “demand for cash decreases”. Currently, Norges Bank is studying all the aspects necessary for creating a digital currency.
3. JP Morgan to launch its own cryptocurrency technology
New-York-based American multinational investment bank and financial services company JP Morgan will launch its own blockchain technology. Blockchain is the digital structure behind cryptocurrencies such as Ethereum, Bitcoin. JP Morgan based its self-created blockchain network on the blockchain that powers Ethereum. According to Amber Baldet, JP Morgan’s blockchain lead, the bank will utilize its own blockchain network called Quorum to allow other blockchain networks to collaborate with each other. JP Morgan’s website lists trust as one of the essential features of Quorum: “While signature validation in a permissioned network adds a peace of mind not present in anonymous networks, Quorum doesn’t compromise on distributed block validation, creation, or a single chain architecture. It’s the best of both worlds.”
Whether central banks will eventually become the central issuer of one digital currency or not, no one knows. The only thing certain is that digital currencies will inevitably be an economic staple in the near future, if they aren’t already.