While the verdict on cryptocurrency products and funds remains mixed, Fahad Al-Mubarak, governor of the Saudi Central Bank (SAMA), stressed that traditional banking systems will remain prominent and will not face “destruction” by digital currencies, but rather an expansion of centralized systems for regulating the tender will take place.
Speaking at the fifth edition of the Future Investment Initiative (FII) conference, Al-Mubarak said that SAMA should have no involvement with crypto-assets, stating that those who deal in them are “criminals”.
He added that regulators are still playing catch-up when it comes to how cryptocurrencies should be governed in the region.
Addressing the regulatory and security concerns of current digital currencies, Al-Mubarak (pictured below) shared that the kingdom is exploring the possibility of a low-cost digital central bank that simulates digital operations, which would have a hedge against real liquidity held in central banks.
A few countries have already started experimenting with these systems, in which Al-Mubarak referred to the kingdom’s interdigital currency project with the UAE, Project Aber.
On the evolving role of traditional banks, Bob Diamond, CEO and founder of Atlas Merchant Capital, explained that there are “two extremely powerful forces at work” – a power play between traditional financial institutions and the influx of technology, which is transforming the role of legacy banks in a world captivated by crypto and decentralized finance.
“For legacy banks, looking at the US as an example, the market cap of financial services before the crisis was 95 percent traditional banks.It’s less than 70 percent,” said Diamond.
As banks try to adapt and survive in an increasingly tech-dominated world, Diamond highlighted that they are running the risk of being viewed as a utility – only good for basic financial transactions and weighed down by legacy processes and technologies.
“While banks are much safer than they were prior to the crisis for all kinds of reasons – some better managed, some have higher levels of capital, but the returns are going to be more like utilities,” he said.
Timothy Collins, CEO and managing partner at Ripplewood Advisory, believed that the “erosion of trust” between the public and the government has been a key instigator for the surge of decentralized digital currencies.
“The first and the most important factor is trust. I think you have to be blind not to see the risk of the corrosion of trust around the world,” said Collins.
“Cryptocurrencies exist for two reasons – for malign reasons because people use cryptocurrencies to do bad things and because there is a degradation of trust,” he added.
Hussain Abdulla (pictured below), co-CEO of Qatar-based investment bank QInvest, also added that cryptocurrency products are yet to be confirmed as Shariah-compliant and that more research is needed.
He warned that the Middle East is still lagging in terms of digitization, in which he said: “I think looking at where we are today in the region if I compare it with the US, UK or EU, we’re not there yet when it comes to the digitization of the banking industry.
“Winners in the banking industry will be those who take steps today toward digitization rather than later.”
(Except for the headline, this story has not been edited by The Finance World staff and is published from a syndicated feed.)
