Banks don't get it ... yet. New take on Digital Currency

I know this may not be obvious, may not even be correct.  This is not the result of an extensive study, nor is it the compilation of hundreds of “relevant” articles. This is personal knowledge and observation.   The premise is simply that Banks don’t get it when it comes to digital currencies. And … never will unless they adopt to a radically different way from how financing is currently accomplished! How do I come to this conclusion?  With more than a decade’s experience developing and hawking digital currency, I see a pattern.  Originally, I was part of bank-backed startup, and they really did not fully appreciate its value proposition, but the venture managers involved successfully pushed for its creation. This occurred at a time when internet-startup fever was “in” (as it is now).  We had a concept of a fungible credit that could be transferred from any buyer to any supplier to pay their bills.  As time went by, it could create its own ecosystem where the credits could be used downstream by the suppliers of the supplier; eventually evolving down to a retail level.  It would be expected that the purchase of goods and services by downstream buyers or retail clients may well be from upstream buyers/suppliers  or even top level  buyers.  It was a nice cool idea, and we did realize it would be, in effect, a new currency - - - Way cool.  The first step was simply to get adaption on the top level buyer and their suppliers.  Since it was a new concept, the early adopters would most likely discount the “credit” for Fiat based cash via a factoring process - - - At least until the suppliers of the top level suppliers were brought into the ecosystem.   The next phase was to generate multi-level suppliers (suppliers are buyers from other vendors) and the credits could transfer downward and hopefully they would eventually transfer upward (a vendor could be a higher level buyer in this hierarchy).   Two problems arose from the bankers’ side:  One, you must have something, such as commercial paper, to back up the credit in case someone converted to a Fiat  currency (which in the beginning all would most likely do).  The second problem: if the ecosystem was successful, then regulators would step in and ‘who knows’ what would happen - - - Thus it was considered a high risk.  So it was stopped at the first phase (essentially factoring).   I noted over the years, as I attempted to promote this concept, that bankers were simply looking at how they would ‘backup’ the digital currency; this being the fundamental issue in their approach that I would like to point out.  Unfortunately, I did not approach the Walmarts and Tescos of the world, as they probably would have better received the concept.  

Then came BITCOIN: Giving the whole idea away for “free.”  By keeping their creators’ identity safe, as well as crafting a model that federated it across the entire Internet; regulators could not regulate Bitcoin.   I did not see that coming, but should have known there could be a better way to make digital currency work.

Still, even with a revised, Bitcoin like model, the banks resist and hold to attaching a Fiat component to the model.  I try analogies, for example: If someone deposited 100 USD in the bank, do you seek a Fiat backup? No.  More to the point…if someone deposits Bitcoins in an account, do you seek a Fiat backup?  Of course not …. Banks accept this reality - - - Even though it really is not the bankers mentality.  For credit, they have rules that force some form of Fiat backup; similarly, for securities that are traded on margin, there are rules as well.  For almost everything they “sell” there needs to be a backup.  BUT NOT FOR THE CURRENCY ITSELF! Okay, it is not entirely that black and white. Obviously in international transactions, the FX risk needs to be mitigated.  So there is a concern when two or more currencies are involved in a transaction.   Or any value transfer between countries where the currency mismatch is part of the “trade.”  Not germane in the article, since the focus is upon using a single digital currency in the same manner attributed to a Fiat currency.

So what is my point? To create a currency, one that is, in my humble opinion, better than Bitcoin (Replacing Bitcoin). The problem is by providing a foundation of real value (e.g. corporations), one creates an interesting conundrum.  To use corporations to create an underlying value for the currency (just as countries provide value for Fiat currencies), you need to monitor the corporate's credit, but not the currency they create!  By using an agency such as S&P or set of financial institutions as ‘gatekeepers’ who would be responsible for the release of the quantity of currency created (a kind of CorpCoin). Unlike Bitcoin that uses an algorithm to create value (not unlike mining gold), these gatekeepers would create ‘money’ like countries do … they would digitally print it.   What would be the backup?  The faith and credit of the thousands of qualified corporations, they would back the currency; somewhat analogous to the EURO.  Here is the conundrum;  the gatekeepers will monitor the corporations’ money creation requests – if a corporation has $2bil credit line, of which $1bil was used in commercial paper, bonds, etc.  Then if the corporation wanted to create $1bil in CorpCoins, they would be allowed, and the credit use would be booked by the gatekeeper (a blockchain ledger would track all issuance, transfers, and ownership).  Thus spanning the two worlds of Fiat based financing, and digital currency.  Corporations will like the fact that there is no ‘due date’ to pay back (or buy back the coins), and no recurring interest - - - after all it is currency.

Yes, this isn’t all the details, there is a lot more, but these are the high notes.  Also the role of the bank is gatekeeper, meaning they monitor the corporates, and don’t assume the risk.  Banks can make money on backing higher risk corporates (e.g. BB-  rated), transaction and gatekeeper fees.   They become a ‘private’ central bank network for a CorpCoin.

So in summary, banks don’t get it yet; it’s contrary to who they are and to some extent, how they currently make money, but corporations will get it.  Just who will be first?