We considered the audacious theory that, given the speed at which digital finance is developing, traditional huge banks may soon become obsolete. We looked at the underlying shifts in financial goods, how crises drive innovation, and how regulations are evolving.
Key points discussed:
- The real definition of financial innovation: True innovation in finance isn’t about incremental changes but about transforming core financial products. For example, if mortgages evolve from long-term obligations to digital, flexible leases, it signifies a fundamental shift in how mortgages are perceived and utilized.
- Crisis-driven innovations: Significant financial innovations often only emerge in response to crises. Historical events like the establishment of the Federal Reserve and the end of the gold standard highlight happened only in times of crisis. Today’s economic pressures could similarly lead to new innovations becoming mainstream, such as digital currencies.
- The future of digital currencies: I predict that the US dollar will likely undergo digitization to preserve its status as the global reserve currency. I do believe that tokenised bank deposits will replace central bank digital currencies (CBDCs), making banks the de facto issuers of stable coins.
- Changing regulatory frameworks: Regulation will simply not be able to keep up with advances in technology. I used the example of how regulation around protecting horse drawn carriages from the early automobiles fell by the wayside as cars became faster, quieter and more comfortable with how regulation that protects the current banking system will fall by the wayside as artificial intelligence and quantum computing adds features to digital assets and cybersecurity. Also, digital communities are fully capable of self regulation.
- The decline of large banks: We speculated on the potential decline of large banking institutions as financial networks gain prominence. The discussion emphasized that being part of a well-connected network might be more crucial than maintaining large-scale operations in the future financial ecosystem.
We had a robust exchange on all the points above.
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