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 MUF
Source – https://www.cryptolerance.com/3-big-banks-building-their-own-cryptocurrency/