The banking system has gone through many phases of acceptance with cryptocurrency; from dismissal, to fear, to embracement. It has not done this willingly; cryptocurrency is not only an existential threat to the banking system, but perhaps it’s only path to survival. Stuck between the juggernaut or cryptocurrency and an out of control Federal Reserve, banks are finding it harder to find their place in a quickly changing fiscal and monetary landscape.
The US Government Does Not Control the Dollar
To understand what’s happening, one must first understand exactly what the United States Federal Reserve is. First of all, despite the intentionally deceptive name, it is not a government entity - it is a private institution. The concept of a Federal Reserve was dreamed up not by elected officials, but the powerful heads of private finance. The goal was to take control of the United States money supply, meaning all money in existence was on loan from the Federal Reserve to the United States, with interest owed. Certainly the United States would not agree to this, right? Wrong. A few backroom deals, the coincidental death of several key opponents, and an unusual vote the day before Christmas eve, and the Federal Reserve Act was born in 1913.
Borrowed with Interest
Publicly, the Federal Reserve claimed their goal was to stabilize the United States’ economy and usher in a future free from recession, depression and market calamity. Internally, what the Federal Reserve was really interested in was becoming the financiere of United States debt. Every dollar in the United States money supply is owed back to the Federal Reserve with interest, interest that is paid for by the income taxes of every working American. This system has become so successful that the United States Federal Reserve is now the de facto Federal Reserve of the global economy, directly or indirectly controlling policy across the globe.
Cycle of Debt
One important factor that the Federal Reserve knew, but most politicians did not, is the Federal Reserve system leads to a logical and unavoidable conclusion; the debasement of a nation’s currency until it collapses. The more money a nation borrows of (its own money) from the Federal Reserve system, the more interested it owes. The more interest it owes, the more money it needs to borrow. And to make things worse, this system creates an unfortunate byproduct called inflation, the ‘hidden tax’.
It’s in the Federal Reserve system’s best interest to delay the collapse of a nation’s currency as long as possible in order to keep collecting interest payments. One of the ways it does this is by adjusting the interest rate. Most people think of the interest rate in terms of buying a house or a car, but there is an interest rate set at the national level that is used to slow down or speed up the economy. You would think the goal would be to keep the interest rate low so the economy is always running hot, but ‘cheap’ money from a low interest rate leads to too much debt and risk, in which case the interest rate is increased to cool things off and bring the economy back to a stable center.
Fast-forward to today and we are on the precipice of the endgame. The interest rate trick has played itself out where it can neither be raised nor lowered with disastrous repercussions. If the Federal Reserve increases the interest rate, the global economy will slow down to the point of death. If the interest rate is lowered, the entire financial system that depends on interest payments will collapse, bringing the global economy down with it.
So Why Will Banks Embrace Cryptocurrency?
Something has to give. The lesser of two evils is to lower the interest rate. At some point it will be lowered, possibly into negative territory. This affects bank deposits. Would you keep your money in the bank if you were charged interest for doing so? Maybe not. Without enough deposits, the retail banking industry will cease to exist. When you deposit money into the bank, the bank takes your money and invests it. They don’t stay afloat on the petty fees charged to their customers, they make their profit from the money in your account.
Last Chance to Stay Relevant
So where will people put their money after removing it from their bank account? Some will go under their mattress, some will get invested, but increasingly more of it is going into cryptocurrency. Cryptocurrency is enjoying mass adoption; some see it as a store of wealth or value, some see it as a speculation or investment, some see it as the only place to put their money outside of the system. And they are all correct. A lot of smart money is going into cryptocurrency and the banks are noticing. Banks might not be able to directly manipulate the value of cryptocurrency, but they can profit from their own speculative investments, or charge for ancillary services around the use or storage of cryptocurrency. Whenever large amounts of money are changing hands, banks will find a way to siphon some of it off.
As interest rates continue to drive lower to keep a dying global economy on life support, the banking system will have to adapt to a new low-interest paradigm. Banks will go where the money is, and that’s cryptocurrency. What was once scoffed and dismissed by the banking establishment, now might be their only lifeline to survival.
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