Banks beware a currency revolution
Australia’s big four banks could be reduced to one within a decade, in an extreme scenario, as Western countries follow moves in China towards the mass adoption of social media-based payment systems, according to a New York University professor visiting Perth.
The rapid uptake of Wechat and Alipay in China showed what Australian financial markets could face in the near future, NYU professor of finance and business transformation, David Yermack, told an audience at The University of Western Australia last night.
In March, China Daily reported mobile payments in China were worth $US41.5 trillion in 2018, up 27-fold from five years prior.
The move to payments through social media platforms would have a big impact on banks, Professor Yermack said, because reserves were effectively being withdrawn from traditional institutions and coming under the control of alternative payment providers.
There was no guarantee how the new platforms might allocate those reserves, he said, meaning there would potentially be an impact on the money supply across the economy.
In China, the draining of reserves added to pressure on traditional banks.
Facebook has been the first mover in this space outside China, having announced its Libra cryptocurrency in June this year.
A cryptocurrency is a digital means of exchange underpinned by a decentralised ledger, or blockchain.
Facebook hopes to make it a global payment system, with transactions to easily flow across borders.The company has signed up partners to the project, including Paypal, Mastercard, and Vodafone, with an aim to raise about $1 billion.
They form the Libra Association, a not for profit registered in Switzerland.
Libra coin will be live as early as next year.
Professor Yermack said other technology giants could follow.
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