Banks Encouraged to Invest in Cryptocurrencies

With the year that cryptocurrencies as a whole are having, it’s no surprise that banks are being encouraged–if they haven’t already–to invest in digital currencies.
On June 19, the International Monetary Fund (IMF) issued a staff discussion note called “Fintech and Financial Services: Initial Considerations” stating that banks should look to cryptocurrency investments as a serious option.
“Rapid advances in digital technology are transforming the financial services landscape, creating opportunities and challenges for consumers, service providers and regulators alike,” the note reads.

According to the 49 page report, global investments in fintech companies has increased from $9 billion in 2010 to over $25 billion in 2016. Venture capital investments have also been on the rise, increasing from $8 billion in 2010 to roughly $14 billion in 2016.  Of note, the report highlights that market valuations of public fintech firms have “quadrupled since the global financial crisis,” meaning it has outperformed other industries. This, no doubt, means investments in cryptocurrencies are rapidly becoming an attractive space to be in.
That said, some of the key findings of the report include:

• boundaries are blurring between intermediaries, markets and new service providers;
• barriers to entry are changing, meaning that they’re being lowered in some cases while being increased in others, “especially if the emergence of large closed networks reduces opportunities for competition”;
• technologies may improve cross-border payments, including alternatives to cheaper services and lowering costs of compliance with anti-money laundering and fighting financing of terrorism regulation.

“Overall, the financial services sector is poised for change. But it is hard to judge whether this will be more evolutionary or revolutionary,” the report reads. “Policymaking will need to be nimble, experimental, and cooperative.”
The firm also stressed that regulator authorities need to be able to balance efficiency and stability tradeoffs in the midst of change, highlighting that cyberattacks, money-laundering and terrorism financing should be “effectively managed.”
With that in mind,  Bloomberg reported that the People’s Bank of China has started testing its own prototype currency, while Vietnam’s central bank is allegedly looking into the possibility of using bitcoin. The US central banks, however, are still not looking to digital currencies. On the other hand, CNBC reported that Ashok Vaswani, Barclays UK CEO, has “been in discussions” about bringing cryptocurrencies “into play.”
Still–it’s hard to ignore the rise of cryptocurrencies over the last several years–and 2017 in particular–as more industries, companies and even countries have implemented varying uses of cryptocurrencies. As such, IMF states it is “well placed to play a significant role” in the fintech sector.
“With the blurring of boundaries among entities, activities, and jurisdictions policymakers need to consider implications for common standards and legal principles, to the extent that they align with national priorities,” IMF’s report reads.
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Securities Disclosure: I,Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.