Cash Vs. Crypto Blog

  • Apostolos Savvas
  • 22 November 2021
  • Blog | Fintech and Innovation in Banking | Blog

On 20th October 2021, the Chartered Banker Institute invited John Maynard (Service Development Manager, Pay.UK), David Hensley and David Fagleman (Enryo Co-founder & Directors) to provide their opinions and position regarding “Cash vs. Crypto” through an interactive webcast delivered online.

They briefly defined Cash as money in the form of notes and coins, rather than cheques or credit cards (in a definition taken from the Oxford English dictionary); Cryptocurrency was defined as the digital currency produced by a public network, rather than any government, that uses cryptography to make sure payments are sent and received safely such as bitcoin; and finally, Cryptography as the practice of creating and understanding codes that keep information secret. The use of special codes keeps information safe in computer networks.

Through an interactive poll with the audience, they captured that 33.3% believed that crypto could replace cash in the next few years while the rest of the audience disagreed with this statement. At the same time, they captured that 70% believed that crypto is a good thing.

John Maynard, when he was positioning on Crypto, referred to a simplistic view of crypto (digital) tokens, which can be transferred from one person to another without any intermediaries (called corresponding banks). Transferring crypto cannot really be compared with cash from an exchange advantage perspective, as sending cash locally or abroad could take a longer time than instant crypto transactions. He highlighted that crypto is being considered mostly as an investment, rather than a day-to-day payment tool and this is due to the unstable value of crypto, which could change from one day to another, so a pizza or a car bought using crypto could have a totally different value as per the crypto value inflation. It is important to note that cryptocurrencies do not involve any KYC (Know Your Customer) processes, which makes the identification of two exchange parties totally unavailable but that does not mean that the crypto networks are all anonymous. Finally, from a financial perspective, not all cryptocurrencies have the same instance within the crypto market as some have few coins available in the market while others have millions of those and allow users to continue mining. From another perspective, Stablecoins are the electronic version of a central bank regular currency and shouldn’t be used differently with different values, as that could be problematic from a central bank(s) holding asset perspective.

David Hensley provided his personal and economic perspective definition of cash that refers to money that is widely acceptable to buy products and services. The money and exchange between people are based on trust and the value of that money remains stable. Key cash characteristics are that it should be durable, uniform, limited in supply and portable. A key aspect of cash is that two unknown people exchanging money do not need to trust each other to complete a transaction, what makes the difference is the intermediate bank, which provides the trust element as a 3rd party. He believed that cash could be potentially replaced but there are various steps to be followed and some potential challenges to take place over the years built on trust and through new ways of transacting. Currently, central banks’ balance sheets are based on how much cash is being held, which would require key changes to their frameworks and overall economic risks. He positioned his belief that cryptocurrencies will not replace cash, something else probably will - but not this type of currency. Also, cash represents only 4% of global economic wealth, so it wouldn’t be a reasonable action to look for a potential replacement against commodities or other investment types.

This is a timely moment for the financial sector to be having such a discussion around this subject due to the plethora of new cryptocurrencies that have been created during the last 2 years (in the UK, the Bank of England and the Treasury gave notice only last week that they are intending on launching a consultation on a UK central bank digital currency in 2022) and people seem to be confused if crypto is the ideal investment as gold and silver was years ago. People worldwide tend to buy products and services using plastic money such as credit, debit and gift cards which are all based on the FIAT currencies (Pound, Euros, Dollars etc.) but if crypto-economy tends to become a normality, it could gradually move from an investment tool to an alternative day-to-day payment option, allowing cash to retire smoothly over the years. The Chartered Banker Institute will continue to monitor closely the cryptocurrency framework, the risks and opportunities behind the new trend and provide the proper information to the sector through accurate and trusted sources.

Watch the full webcast featuring our Chair, David Fagelman, (Co-Founder and Director at Enryo) and panellists David Hensley, (Co-Founder and Director at Enryo) and John Maynard, (Service Development Manager, Pay.UK) by clicking here. 

References

Cash vs. Crypto Webcast delivered by Chartered Banker Institute. https://www.youtube.com/watch?v=dB1GZnwerOs&t=352s

https://www.bankofengland.co.uk/news/2021/november/statement-on-central-bank-digital-currency-next-steps