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Which Way Are the Banks Going?

27.05.2021

Cryptocurrency exchanges are continuing to attract former bank executives with very long periods of service behind them, and are continuing to attract them in senior positions.

Just today, a senior Goldman Sachs executive with a tenure lasting over 15 years with the investment bank joined a cryptocurrency exchange as its Chief Policy Advisor.

Whilst some investment banks are absolutely on board with cryptocurrency and are branching into offering it as a genuinely available asset along with its associated technology, others have taken the opposite view.

Today. British investment bank HSBC, which is one of the world’s largest OTC securities dealers by market share, has officially stated that it will not be entering into any cryptocurrency market in any capacity, its CEO Noel Quinn having told Reuters today that “HSBC has no plans to launch a cryptocurrency trading desk or offer the digital coins as an investment to customers, because they are too volatile and lack transparency.” 

This takes the opposite tack to Goldman Sachs, which reopened its cryptocurrency trading desk in March this year, and JP Morgan which is exploring the possibility of being able to offer cryptocurrencies as a managed investment product.

This dichotomy is having an effect on the movement of talent insofar as that nowadays it is quite normal for an executive who has a solid record of long service with a belt-and-braces bank to move into cryptocurrency, whereas those with a very risk-averse nature within banks that eschew cryptocurrency are likely not to show their card by moving to a crypto exchange and are perhaps more likely to toe the traditional line.

The increasing interest by banks which have taken an anti-cryptocurrency stand in centrally issued cryptocurrency, such as Christine LaGarde’s proposed ‘digital euro’ and British Chancellor of the Exchequer (finance minister) Rishi Sunak’s “Britcoin” shows that once again, it is the decentralized and immensely popular cryptocurrencies such as Bitcoin, Dogecoin and Ethereum that have universal appeal, as the centrally issued efforts, even though brand new and not yet in circulation, are simply virtual versions of existing bank notes.

They are no different to using a debit card or making an internet bank transfer, because they are simply normal Pounds, Euros, and perish the thought if you are Chinese and don’t want even more interference from the government, Yuan.

They exist for a different reason to decentralized cryptocurrency. They exist to remove the paper usage from production of legal tender. They exist for governments to be able to collect tax on unofficial cash markets such as street trade, small retail shops, taxi drivers and construction workers.

They essentially exist for the absolute opposite reason to that of decentralized cryptocurrency. Bitcoin, Dogecoin, Ethereum and their stablemates exist to free entrepreneurs, investors, speculators and free market advocates from the shackles of government or central bank control. They are popular for many reasons, but some of those reasons involve distrust in the traditional Tier 1 financial system, government policy or geopolitical economic situations.

A digital bank-issued version of an existing sovereign currency simply increases the level of control on the population by the state, whereas decentralized cryptocurrency empowers individuals. That is one of the reasons why it is so valuable, and so easily affected by mood, statements and one-liners such as tweets. It’s all about what the public thinks, and has no tangible connection to government policy, domestic economies or bank criteria.

Just in Europe alone, many parts of the continent are highly advanced in terms of how point of sale transactions are conducted. France is one of the leaders in this, as absolutely everything is contactless, however the French public are not tolerant of attempts to lock them down or control their lifestyles, and therefore have become very sceptical about any digital issuance from the state that can restrict their movement or liberties further. On the other side of the same (bit) coin, France has a huge market for decentralized cryptocurrency.

Germany is up to its eyes in debt, has a corrupt and bankrupt Tier 1 bank (Deutsche Bank) which is creaking and crumbling, has tremendous debt owed to it by various other EU member states and has an old fashioned, low-tech manufacturing sector which cannot modernize.

Indeed Mr Quinn, the aforementioned CEO of HSBC who is absolutely anti-cryptocurrency has stated in the same interview with Reuters today that he is an advocate of central bank digital currencies (CDBCs), which is in line with the thinking of many central governments wishing to control their populations via digital bank accounts with mainstream financial institutions. 

“CBDCs can facilitate international transactions in e-wallets more simply, they take out friction costs and they are likely to operate in a transparent manner and have strong attributes of stored value” said Mr Quinn today, and it has been revealed that HSBC is in talks with various governments about working with them on CDBC projects, including Britain, Canada, the UAE and yes, you guessed it, China.

Given that HSBC has a huge footprint in China – it originated as the Hong Kong and Shanghai Banking Corporation and has its roots back in the colonial days – and that it issues Hong Kong Dollars as official notes, its ties with the state are evident and the opportunity for HSBC to grow its government-backed remit are huge if it goes down the CDBC route.

The original Bitcoin advocates 10 years ago often talked about foreseeing exactly this: A world in which cryptocurrency would fall into two camps, that of the free, democratic self-generated peer-to-peer decentralized world and the sophisticated exchanges such as CoinMetro that have multiple functions including cold storage of assets, trading against instruments in various global markets and the ability to exchange fiat currency and invest in a range of cryptocurrency assets, and that of the central government and the banks, offering their version which does the absolute opposite.