There is massive global disruption coming soon.
Along with it will be a big fight. This disruption will not involve nuclear warheads and F-35 stealth jets, but will be fought out on a global basis. Brexit will be small change compared to this scrap. And for many of us, we have no idea that it is coming.
But the banks do. The next decade will see a global financial scrummage like no other we have ever witnessed or experienced. The problem is there is no way to predict the ultimate winner. And the bookies will not offer odds on this one…
Last week saw Bitcoin jump in value. The cryptocurrency leapt 22 per cent at one point as I watched my Coinbase account ramp up in value. But why? Of course, there are always the whales, investors who have significant Bitcoin holdings, who get the blame for rapid “pumps and dumps”. But, this time it seems that these whales may have been out-gunned by a big beast lurking at the bottom of the ocean – the Chinese government.
China banned cryptocurrency exchanges in 2017 and has been quiet on the subject, despite many Chinese investors advocating Bitcoin. But only last week, comments reportedly made by Chinese leader President Xi Jinping have caused ripples in the financial world. Speaking at the Political Bureau of the Central Committee last week, he described Bitcoin’s underlying blockchain technology as an “important breakthrough” and said more should be done to encourage its development.
He added that China should “seize the opportunity” offered by blockchain technology and accelerate its development. These comments alone are said to have fuelled the sharp rise in the value of Bitcoin. Taken alone, they may have had some influence, but when considered on a wider context of global finance, the fight is on.
On the week when Facebook CEO Mark Zuckerberg was grilled by the US Congress House financial services committee on his new Project Libra currency, China has let the world know it is in the game.
If China succeeds in developing its own national cryptocurrency, then it is feared it will be a game-changer for global banks. In short, making them virtually obsolete. And this is the battleground that the war will be fought on. As China can impose its currency on its 1.4 billion people, then those who want to do business there will have to come to heel and get on board.
And this has huge implications for banks and financial services across the globe. Additionally, a report published by Binance, the world’s largest cryptocurrency exchange, gave an overview of what China’s central bank digital currency is expected to look like and how it will compare to Bitcoin and Facebook’s forthcoming Libra currency. And both should be worried.
The traditional banking system is archaic. New challenger banks are eating away at how it operates. Monzo and Revolut are the cards that I see young people producing to pay for goods.
These accounts have been designed to look cool and function really smoothly. And they do. But even these new banks are in danger of being obsolete if they do not embrace cryptocurrency. Money as we know it about to change. The change in your pocket will be a relic of the past as we all move to money that is in code and algorithms. But what can we expect in the short term?
Digital exchanges and small challenger banks may team up to offer banking and crypto at the same time. Bigger banks, still reeling from PPI hits, may buy up smaller lenders and partner with crypto exchanges. PayPal, Visa and Mastercard will have to get on board and may even be developing systems to cope with the changes and even lead the way.
Just think how many credit cards there are in China today that could become landfill. This war is just beginning, but it will be quick when it happens. I would not want to be the CEO of a traditional high-street bank or investment house just now. If I were, I’d already be moving my chess pieces into the cryptosphere.
Jim Duffy MBE, Create Special