Thread by @FinFloww

The RBI is soon going to role out India's own digital central cryptocurrency or CBDC.

Could this kill all the banks?

Let's find out in a thread 🧵

In the last few months there has been a lot of chatter in India about RBI commissioned cryptocurrency.

These are basically CBDCs (or Central Bank Digital Currencies).

People have been talking about how that could kill other cryptos like Bitcoin. But you know what?...

It might not have any effect on bitcoin, but it has the potential to actually destroy something we have been using since ages: The Bank.

A bank is an intermediary. If put very simply: it takes deposits from people, lends that money to people who need it, charges an interest on it, pays a part of that interest to the depositors and keeps the rest.

The fundamental functioning of a bank is based on being a middle-man, but here comes a technology that is removing the need of a middle-man: Blockchain.

If you see the way we store our money you'll understand that it's actually out of our control.

We store it in banks on their guarantee that they’ll keep our money safe.

Now comes the important part of this discussion. Why should we not have full control over our money and why should we depend on banks to secure it?

That’s where cryptocurrencies like Bitcoin came in which are basically digital currencies on the blockchain that don’t need to be stored in a bank. We can store our money directly in them.

But the problem is we don’t have any guarantee that if we store our money in cryptocurrencies, their value will be secure and not subject to any fluctuations.

Watching this hype and adoption of digital currencies, Central Banks of countries have become worried. The have presented us with a solution: A centralised digital currency.

Retail CBDCs are the one which central banks would issue directly to our mobile wallets.

Here bank deposits will be completely eliminated since there would be no need to store our money in the bank. And since banks give out loans using the money in their deposits, the whole financial system of the country will be disrupted.

But maybe not so soon....

So, this phenomena might happen in the future but for now most people are sure that the RBI and all the other central banks would not disturb the whole financial system of the country.

Hence the central banks could issue these CBDCs to the commercial banks and these commercial banks would then issue that money to us.

This system is exactly like we have with physical notes currently.

Retail CBDCs might be wayyy into the future but one thing is for sure: we would someday live in a world without banks.

If such a thing happens that would give people choice over their deposits, like we mentioned before.

When we have a choice then we’ll see the emergence of new financial instruments and fintechs giving even better and safer places to store and grow our money.

If a bank collapses a lot of people across the world are affected.

The people who have deposited their money might get "minimum guarantee" back from the govt, but never the full amount.

A central bank digital currency solves this by removing the bank.

There are a ton of other benefits of CBDCs like financial inclusion, better monetary policy management amongst others.

These would need separate threads so stay tuned, turn on your post notifications to never miss a thread.

But for now we should know that banks aren't going anywhere, and every effort will be made to preserve the importance of banks, while making them safer.

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