Legislative changes as explained by Martin D. Weiss and Juan M Villaverde on Weiss Ratings is proof that very soon, cryptocurrencies may replace banks. The US government is reportedly making changes to the Volcker Rule. This rule is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
In 2007, financial crisis and bank bailouts were the order of the day in the US. The US House of Representatives then voted to name the Federal Reserve the primary regulator of the Volcker Rule in 2010.
The crisis resulted from financial mismanagement by large corporations. With the Dodd-Frank rule, the US government possessed the power to control and punish these large corporations for mismanaging funds. The existence of the Dodd-Frank act thus creates a more tightly monitored environment for a financial institution.
The Volcker Rule ensured that these large corporations desisted from unpredictable investments using customers money. If these restrictions are loosened by the US government, Weiss and Juan say that it will mean danger. The danger results when employees of large corporations indulge in risky financial derivatives using money deposited by customers.
It is no wonder that individuals in Third World countries shun banks for the simple reason that banks gamble and mismanage customers funds.
Will Cryptocurrency Help Eliminate Mismanagement of Funds?
Weiss expressed concern over the mismanagement of funds by banks which is only evident during a crisis. He is positive that cryptocurrencies can help solve these issues. Weiss also notes that the adoption of cryptocurrencies is limited because of price volatility and education and is sure that when these hurdles are removed, these problems will be eliminated totally.
He writes “Unless they adapt to the cryptocurrency revolution, it’s hard to imagine a world in which banks in their current form retain custody of people’s assets. And it’s easy to imagine one in which crypto platforms disrupt banks like Uber or Lyft disrupt taxis.”
Many individuals believe that banks, however, are more trustworthy than cryptocurrencies. For example, the governor of the Central Bank in Spain warned that cryptocurrency presents more risk than reward. Luis Maris Linde, governor of Banco de Espana shared the same view. He highlighted that extreme volatility and its frequent relation to fraudulent activities are some risks of using cryptocurrencies.