Banking is an international tradition that is not taken lightly. It has been carefully managed in America by its custodian, the Federal Reserve, and whether using a currency backed by gold or today’s fiat currency with the full faith and credit of the U.S. government, the dollar has been protected, supported, and even defended with acts of war. For this reason, the dollar has long enjoyed the pole position amongst all other currencies in the world but now faces challenges in satisfying a global appetite for mobile payment systems and a borderless digital currency. The balance of power and wealth depends on this outcome and will affect tomorrow’s history of mankind and even geographical borders the banking system must now transcend.
It has long been debated whether the U.S. currency accepted in most countries is enough to satisfy the desire for a global monetary unit not subject to exchange rates, having equal value everywhere. The strengths of the dollar and our current banking systems are or course the inherent weakness’ of any new concept of currency. Inherently any “startup currency” will begin as a fiction backed by nothing (if not gold) and be defended by no one. It is more likely to go the course of pink sheets or ponzi schemes than become a new global currency we trust. And so, if new currencies are not the answer and the dollar alone cannot achieve this desired supernatural status, then perhaps new bank methods and mobile apps are the answer advancing what we know and trust. An ideal global/digital transaction is one where borders and currencies are invisible at the transaction level and can exist administratively through bank processing where debts are settled and instantly reflected on digital balance sheets. Effectively in this scenario there would be no visible currency or prejudice, only the value of what you were trading electronically based on internationally accepted valuation. This too could open the door to transferring wealth in other ways including traded commodities, reward points or any other unit with a discernible value. Your total net worth would be the cumulative value of all such assets and all would be available to use in a digital transaction depending on globally uniform exchange rates.
The world voice is united in desiring a globally accepted digital currency. This currency, or system must be trusted, defended and accepted everywhere. The world also wants a digital platform that would allow for paper currency to slowly disappear and the opportunity for mobile transactions to become the primary tool for peer to peer, merchant sales and even checking, bringing this historical I.O.U. into the 21st Century in exciting new ways.
Sometimes you need to take a step back to move forward. Before we rush into concepts that affect the future of banking or try creating new global digital currencies, we should first understand fundamentals (and history) that will determine their success or failure. One thing is for certain, if investment banks like Goldman Sachs or their cohorts were seen as too big to fail, then our Federal Reserve and its 12 Central Banks are beyond failure.
The future of banking will involve new processing systems, regulations and even mobile platforms that will meet the demanding digital desires of consumers and account holders. No social media payment scheme, new fictitious currency or even alternate international currency is likely to dethrone the U.S. banking system that permeates the lives of so many and global power balance so long as the Federal Reserve responsibly navigates its new challenges. Thus far their management has successfully maintained both value and confidence in the dollar since 1913.
Things to look for by 2025:
• Small paper currency and coins will continue to disappear until gone.
• Checking will play a greater role than imagined with real time account verification, funds verification and settlement.
• The transactional credit market will remain popular but grow in risk to its operators due to fraud and identity theft. This may result in higher transaction fees and interest rates to the merchant and consumer respectively.
• The Federal Reserve will rise to the occasion and invest in technologies that create at least the illusion of a global currency that is really the seamless backend management of all currencies and their exchange rates.
• Transactional security will involve DNA and likely rely on thumb scans, voice prints and iris scans.
• BitCoins and others like it will fail but serve as an example of the world’s willingness to explore new ideas in the realm of globally uniform digital currency.
• Ultimately the one’s we will trust most are the one’s who we have trusted thus far - traditional banks who will evolve into new models that rely less on human interaction and use technology and advanced processing.
• Virtual banks will dominate the previously un-bankable population finally giving them access to a safe depository, debit card, ATM and even checking without the impediments that keep them un-bankable today.
In 1791 Alexander Hamilton said while presenting his bank bill to the Senate "There is scarcely any point in the economy of national affairs of greater moment than the uniform preservation of the intrinsic value of the money unit." One week after it was approved he concluded "On this, the security and steady value of property essentially depend." Not much has changed. The future of banking is probably less about new entities getting in the game or a new dominant global currency and more about the evolution of the Federal Reserve System and its Central Banks to operate securely and digitally in the 21st century and beyond.