Reserve banking

Bitcoin’s viability in a full reserve banking scenario

Bitcoin is often seen as several things, ranging from a commodity to a currency, and even a solution to solving all financial problems in unbanked and underbanked regions. But very few people believe that Bitcoin has the potential to completely change reserve banking, freeing consumers from being enslaved to the banking ecosystem. While there are serious doubts about the complete demise of central bank-issued currency, Bitcoin could end up becoming a full-fledged banking solution.

Also read: Bitcoin and Bullion, a great combination

Bitcoin is financial freedom

At its core, the Bitcoin The protocol is designed to give consumers and business owners full control over their finances at all times. Although there is a lot of attention on the financial side to use Bitcoin technology, this point needs to be hammered out until people understand that Bitcoin is not only technology, but it is also a viable currency.

When involved in Bitcoin, the sole user is responsible for the safety of their funds. There are no banks or governments involved, and this thought scared many people. So far, there has been a fair amount of control from these established financial players. However, everyone should remember that banks and governments are the root cause of the financial problems that the whole world is experiencing right now.

That being said, government issued currencies are unlikely to disappear anytime soon. Replacement of old system and the financial infrastructure at the same time will be quite a challenge, although many in the Bitcoin community would like to see this become a reality. However, there is a chance that fiat currency and Bitcoin will complement each other in a fairly straightforward way.

Reforming the Comprehensive Reserve Bank

Reserve bank is an integral part of the fiat currency ecosystem and comes in two different forms. The version that a Reddit user is interested in is full reserve bank. The way this principle works is to force banks to keep a portion of each depositor’s funds in cash, which can be withdrawn on demand. Some people may have noticed that depending on how much money they want to withdraw from an account, there is a waiting period.

In addition, funds deposited into these on-demand accounts would not be loaned by the bank to anyone else as this would violate legal requirements. Not surprisingly, no country in the world needs a full reserve bank at this stage, despite monetary reforms advocating this change since 1935.

Bitcoin could be an attractive option to tackle full reserve banking in the financial sector. The way it could work is to use Bitcoin as a hedge against banks, and the assets could be accounted for on the blockchain. Transparency in full reserve banking is essential, but it is also a feature that most banks lack right now.

Achieving this goal will be difficult, however, as banks have no apparent interest in Bitcoin. Although they explore the limits of issuing their digital currencies in the future, they will not be suitable candidates for a full reserve bank. Bitcoin has many advantages, but it will be some time, if ever, before banks embrace this concept as part of the financial ecosystem.

Source: Reddit

Header image courtesy of Shutterstock

Leave a Reply

Your email address will not be published.