Banks are slow in large part because of systems built to support the AML/KYC controls and fraud prevention. (Think about your wire transfer getting screened etc). New banks do this more efficiently but this is still the bottleneck.
A bank doing stablecoins will still need to implement these controls.
Stablecoins only really work because they are outside the system.
Curious what exactly differs between EU and USA to make American transfers so inefficient time-wise. In the Eurozone SEPA instant transfers are settled in seconds (usually under 10 seconds, with max 20 seconds allowed), and AML/KYC regulations are quite strong.
EU directives have forced banks to modernize at a pace that wouldn't have been possible if we just let the free market decide. There are downsides to the heavy regulatory framework, for instance the unhealthy consolidation and size of systemic banks. But we enjoy pretty advanced banking services and arguably the most flourishing fintech ecosystem by worldwide standards, mostly thanks to EU technocrats.
The EU is also looking into creating a digital euro ("eurocoin", so to speak). The basic idea being to break the power and thus risk of systemic banks.
You'd have an account at the ECB that you can keep your digital euros in and exchange to and for liquid euros. You'd get the ECB interest rate.
Then if banks want to convince you to hold your eurocoin on their wallet / exchange / stake it, they'd have to offer better features and better interest than the ECB.
Sadly banks are in full swing trying to torpedo the proposal with lobbying, to the point where there's a lot of noise about the ECB only being allowed to be a facilitator and not allowed to be actual competition to the bank, and instead it's banks that should get the sole right to hold digital euro accounts.
> But we enjoy pretty advanced banking services and arguably the most flourishing fintech ecosystem by worldwide standards
Interestingly enough the US does have very modern financial institutions: credit unions. An American woman I met in Vietnam and traveled together with for a bit had a Charles Schwab account that had more features, more free overseas withdrawals and a nicer mobile app than my Dutch bank. It was almost on par with Revolut / N26 / Bunq.
> Interestingly enough the US does have very modern financial institutions: credit unions. An American woman I met in Vietnam and traveled together with for a bit had a Charles Schwab account that had more features, more free overseas withdrawals and a nicer mobile app than my Dutch bank.
Charles Schwab is the 12th largest bank in the US by assets.
I do agree that credit unions can be great, however, the experience between them is wildly inconsistent. Some have apps that barely work, and some have decent apps that are a bit dated and clunky. The big banks generally have the best UX/support/etc.
> The EU is also looking into creating a digital euro
It's weird to call it a "digital euro" because the euro is already digitized by traditional banks! At an existing traditional bank, your balance is already a discrete number. Money can be sent and received electronically on communications networks without using physical media like coins and bills and cheques.
> EU directives have forced banks to modernize at a pace that wouldn't have been possible if we just let the free market decide
1) Is that automatically good? Damn those capitalists and their slow and steady approach to major changes, I suppose. Wouldn't want to proceed too thoughtfully.
2) The free market in banking looks pretty much exactly like the crypto ecosystem. As people often put it, speedrunning banking history. The only thing slowing the financial institutions down is the regulation (which is pretty much the pro-regulation argument of "if we don't regulate it they'll do a bunch of stupid things too quickly").
There isn't something of a free market in banking but the limitations are extreme enough that it is more of a heavily mixed to centralised one. Interest rates are managed by a central committee and banks provide any colour of service you like as long as it is black. Typically heavy KYC regulations to link the system to law enforcement and state intelligence systems. There is enough freedom to keep the fees fair and a bit of flexibility in what the money gets invested in which is pretty good. But for transaction speed I'd actually be a little surprised if the banks were allowed to control their own settlement timelines; I assume going to quickly would start running in to KYC-style compliance problems.
> 1) Is that automatically good? Damn those capitalists and their slow and steady approach to major changes, I suppose. Wouldn't want to proceed too thoughtfully.
Considering how long it’s taken even the most progressive regulations to be enacted, it’s arguable that we’ve done anything but proceed without thoughtfulness towards how these changes affect the other 99% of the population.
We sure do spend a lot of time letting the wealthiest folks skim those points off the top without spending any more than they are required to by regulations, though.
The US has almost 4,500 banks and about the same number of credit unions. They're subject to federal and state regulation. That's a lot of complexity to manage.
However, there's FedNow immediate transfers, Zelle (consortium of banks) immediate transfers, same day ach (several batches daily), same day fed wire transfers within banking hours, and that's just the faster options.
Decentralized systemd are slow to act and slow to change, which is why all of the faster banking initiatives tend to involve a centralized element.
Zelle is a frontend to ACH with some creative accounting until the actual transfer clears.
Right. FedNow really is "now", which makes the fraud problem worse. FedNow is currently handling about a half-billion dollars a day, which is not much for that industry.
The US has much more corruption so banks have been able to bribe politicians into not requiring they provide low cost services that would mean their executives have smaller boats.
Same in Mexico. I just did a bank transfer that took longer than usual. It took around 10 minutes instead of 10 seconds. It was unusual for me.
You really don't want one typo costing your entire bank account as a consumer. Settlement delays permit easy rollback.
Exactly. A 'stablecoin' that is regulation-compliant is undistinguishable from a bank.
Well, if you're big enough to be TBTF, then you can lever up stablecoin risk because you know you'll be bailed out after they let the little guys tank.
This is nothing more than a trope to absolve government of its responsibility for worsening people's lives. The government imposes massive fines on huge banks, when they are found to have inadvertently banked criminals. And by criminals I don't mean people who were convicted of a crime. Just people a regulatory agency alleged — at some point in time after the bank serviced them — are criminals.
So what banks do is become increasingly paranoid about who they will they bank, meaning anyone who falls into the "high risk" category, is extrajudicially punished through systemically high risks of being debanked. In this way, the state can punish certain groups without due process.
Except that you can do FX and global transfers much more quickly and easily.
Nah, most banks globally have a mechanism to send and receive USD. That's sufficient for all use-cases.
> mechanism
The mechanism often involves correspondent banks, and is generally pretty expensive ($25-$65).
For scale, we’re talking about transfer fees measured in cents with stablecoins.
All of the cost is tied to compliance. A Swift message costs pennies, it's the due diligence behind it that banks charge for. Stablecoins will not change the compliance requirements
Has anyone ever provided an argument against this?
I don’t see how crypto boosters get around the fact that more than 0% of regulations are legitimately desired by most of the world. And those require some non zero amount of bureaucracy and money to enforce.
> > All of the cost is tied to compliance. A Swift message costs pennies, it's the due diligence behind it that banks charge for. Stablecoins will not change the compliance requirements.
> I don’t see how crypto boosters get around the fact that more than 0% of regulations are legitimately desired by most of the world. And those require some non zero amount of bureaucracy and money to enforce.
Taking the statement literally as-is: Yes, a strictly > 0 amount of overhead is required to perform said compliance activities.
But the overhead similarly can *never* be 100% of the money being transferred over. And right now, the transfer costs have only ever been shown to grow, and never shrink in isolation. They only shrink when a new competitor comes in to provide said service, which has rarely ever happened because of said regulations that progressively saddle them with more requirements.
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> I don’t see how crypto boosters get around the fact that more than 0% of regulations are legitimately desired by most of the world. And those require some non zero amount of bureaucracy and money to enforce.
Interpreting this emotionally:
You're leaving out the implicitly-made conclusion that most pro-crypto people will make: That the current banking system *has* to be accepted as-is, useless systems & fee-draining & all that jazz, *and* that they should just take it.
You've already lost all attempts to convince them with that rhetoric. By not putting in more clarifying statements, the gaps have been filled in with the negative implications that will turn them away from supporting your view.
It will be seen by pro-crypto people as own-side points scoring.
But crypto isn’t the only way to change the banking system.
In many cases you can now transfer money instantly and free across European countries. If there’s a will there’s a way.
Turning crypto into an acceptable banking system is probably just as hard, if not harder, than making the existing banking system better, faster and more user friendly.
We’ve been promised crypto would revolutionise payment for more than a decade now. In the same timespan I’ve seen my little country develop a common payment app shared by all banks which has made payment to shops and between people instant and super easy. We didn’t need crypto to make progress.
If banking regulations were relaxed to the point where crypto could be used more widely, traditional banks would also be able to innovate much more quickly without crypto.
In the end, I don’t find it entirely unlikely that banks may use a blockchain to do some of their international settlement. It’s a nice algorithm in the cases where you don’t want a single master arbiter. But it’ll probably be a fairly boring behind-the-scenes kind of thing.
well, they won't change the compliance costs, but those pennies for the swift message will turn into hundreds of dollars for the blockchain gas fee
you probably hold an antiquated notion of how much transaction costs are on blockchains nowadays. It would do good for you to update your priors on this one - you'd be surprised!
That tweet doesn't appear to explain anything about this at all. I take it the information is in the comments? I'm not able to view those.
i don't click on x links, but i bet one trump coin it talked about offchain without taking into account opening up to double spend.
Yes, but the mechanism involves multiple banks in a chain transferring money and messages between each other like it's 1559. So if a single bank in the chain demands more KYC or has an issue, it can take ages for the transaction to sync.
Except you can send payments with an http request
A bank could easily provide such an API without any need for a new coin.
Does that API support sending $50 to my unbanked aunt in Mexico?
I'm curious though, what would she do with that crypto once she had it?
Presumably she'd need to exchange it for cash since retail acceptance of crypto is pretty low, and the local exchange place that takes WhateverStablecoin and hands out cash is going to take some commission. And at that point it seems like we've just reinvented Western Union or Moneygram.
In your view is the advantage of the hypothetical stablecoin way of doing this that it exists outside of the money-transfer provider ecosystem until its actually exchanged?
Regulation-compliance is kind of a requirement for, well, everything, stablecoin or otherwise, so not really sure what the point is here...
Stablecoins don’t need to have proof of reserves or any other normal regulatory requirements banks have.
Circle has proof of reserves, fully regulated and I can use USDC like a regular ERC20, so I think they want the same.
Full attestation doesn't guarantee stable 1-to-1 valuation, even with all of those things USDC isn't equivalent to 1USD and treating it as if it were carries risk.
Definitely,but the Us dollar also carries risk so really there are no risk free assets.
I mean, in the absolute sense, sure, but the "risk" carried by USD is a categorically different, exponentially smaller thing than the "risk" associated with any stable coin. They're not really comparable.
I don’t think that’s true in this case. I would assume the bank issuing the coin has to know the identity of the people they sell it to. But once those people sell it on, it’s not their problem any more. Sure they could get an order to seize those coins (/wallet) and would have to obey. But I don’t think they’d be required to kyc everyone on the network. Just their immediate counterparties…
The idea is (as I understand it) that to get fiat (which is presumably the end-goal) you need KYC, so if each node which converts stablecoin-fiat then you have acceptable KYC. (I am not a regulator though, so who knows?)
Partly it's true, but also all banks in the world are fractional reserve / printing money from thin air from the loans they got from bigger banks.
If the big US banks are successful, they can have their own one huge fractional reserve that can be used by people around the world.
Not only this isn't how banks work, but also completely irrelevant to moving money.
Then whats your brief description of how banks create new money?
While the wording was imprecise, actually this is what banks are doing: Creating loans, based on the deposits of customers.
You wrote "from the loans they got from bigger banks" which makes little sense.
Private banks create money by extending credit, that's it. They worry later about reserve requirements, which in the case of USD or EUR are extremely low.
And I still don't understand how this relevant in any way to the topic.
I wasnt the OP :)
They are expanding credit, but they need customer funds on the central banking level to actually move away the money the created on their local core banking; thats the reason why banks needs customer funds: Without them, their central bank account would be empty and they couldnt transfer any money that they created. the question regarding minimum reserve is another angle and not relevant to the question of how money is technically created and then transfered.
EDIT: for sure, they can also acquire central bank money as a credit to make the payments transfer happen, but usually its more easier and convenient to use customer funds instead of borrowing from the central bank or on the interbank level
My bad. Sure it's easier and more convenient, and also it's cheaper. But not entirely necessary.
Sure, I know of a large corp-only/inudstrial bank, where the "customer funds" are just a bunch of some other mega-corps, each depositing 5-10 billion. (from a regulatory perspective, those are customer funds as well, even if its just 10 different parties)