Question

Discuss why it might be a good or bad idea for banks to hold 100% of their deposits? Also discuss what role is there for banks in a future world of cryptocurrencies like bitcoins.

Answer 1

ANSWER:

It will be an ill-conceived notion to hold the 100% of the deposit. since it will be a disappointment of the goal of the banks that is to bring borrowers and moneylenders at one stage and win loan fee spreads for the investors. Also, the cash creation process and the cash multiplier impact will be hampered when the 100% deposit are held by the banks. Further, it will make the banks offer exceptionally low loan costs to the contributors and it will get ugly to the investors. Therefore, it will add to the dormancy in the entire financial system.

Digital currencies are currently getting mainstream and future, these sort of monetary forms can be authorized likewise by the mindful specialists, for example, Federal Reserve. Here, banks have a task to carry out that will be engaged upon controlled progression of such currencies forms in the economy, acquire steadiness the cost or estimation of the digital currency just as bring a harmony between the conventional and crypto-currency forms of money. It will help the crypto-currency money to get consistent reconciliation with the budgetary arrangement of the economy.

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