The End of the First Crypto Decade

Massimo Morini is a veteran in investment banks and financial institutions including the World Bank.

What happened in the next 10 years? Did banks disappear? Was commercial bank money replaced by a new global cryptocurrency? Did financial markets, that were the spark that lit the crisis flame, get replaced by a network of trustless smart contracts? No, banks survived, and so did financial markets.

Not only central banks, but also other institutions like CCPs or CSDs now crucially manage financial markets such as bond, equity or derivative markets.

In the past, while banks were expanding their balance sheets by creating more money and taking up more risks, some thinkers introduced the concept of Narrow Banking.

This alternative idea of the role of banks could have spared us some of the big financial issues of the last decade.

Narrow banking means banks with a narrower role, more similar to the role they had in some moments in the past.

Narrow banking would require a way to free banks, at least in part, from the role of creating electronic money in the form of deposits.

The crypto decade shows that forms of electronic money that do not take the form of a commercial bank deposit are possible, and can be managed outside commercial banks balance-sheets.

No need to bail banks out if we have reduced the link between financial markets and our deposits of money.

As we recalled above, recourse to centralized infrastructures increased after the crisis, in order to manage collectively the guarantees provided by individual banks, in order to provide more transparency to financial markets, and to help standardization and coordinated risk management.