I read headlines to that effect day before yesterday. I wasn't sure about the meaning of the headlines, or even the content in the articles. So, I went to work on my research. Let's unpack the headline. I needed to know the exact meaning of Wall Street Banks, Central Bank, Digital Currency, and Disruptive Force. Here's what my research yielded.
Wall Street
Wall Street is a street in New York City where the New York Stock Exchange building is.
But Wall Street has come to mean the global finance and investment community. The flip side of that coin is Main Street which has come to mean individual investors, small businesses, employees, and the overall economy.
Wall Street Banks
Wall Street Banks are also called Investment Banks. An Investment Bank differs from a Commercial Bank only in the services they offer.
A Commercial Bank is a financial institution where people can deposit and withdraw money, hold money in savings, and receive loans. The commercial bank makes money by receiving and charging interest on loans. Commercial Banks are usually regulated by the national government or their county's Central Bank. (I'll define "Central Bank" later in this article.) Traditionally, commercial banks have been located in brick and mortar buildings, but lately many banks are going 100% digital.
An Investment Bank is a "financial service company that advises certain financial transactions, deals with corporate finance, helps with mergers and acquisitions, help raise financial capital by underwriting or acting as the client's agent in the issuance of securities" according to Investopedia. Some examples of Investment Banks are JPMorgan Chase, Goldman Sachs, and Deutsche Bank.
So, Wallstreet Banks (Investment Banks) are predicting a big disruption. Disruption of what? What are they afraid of, and why? Will there be "a disturbance in the Force?"
Yup. Basically. That is what these Wall Street Banks are afraid of. Only "The Force" in this case means "global finances."
Disruptive Force
A disruptive force, as applied to Wall Street (the global financial community), is any situation where markets stop functioning like they normally do. Usually indicated by very fast, very large market declines.
The disruptive force that has Wall Street Banks all in a tizzy is Central Bank Digital Currency (CBDC). These words lead to more research and more definitions! We already know what commercial banks and investment banks are. So what the heck is a Central Bank?
This one is easy for me. I already learned about central banks in my article Fiat Money and a Brief History of the U.S. Dollar.
Central Bank
A Central Bank is also known as a Reserve Bank or National Bank. A Central bank provides financial and banking services to its country. It is a government banking system. When a government has a monetary policy, such as to be on the gold standard or not, the Central Bank will implement the policy. Also, a central bank issues the actual money. A Central Bank will control inflation by setting interest rates and controlling the supply of money. A central bank is often the last resort for countries and other financial institutions. The central bank will "bail them out" by making loans to them.
A central bank is not Market-based, nor is it competitive. Some examples of Central Banks are:
U.S. Federal Reserve Bank
European Central Bank
Bank of England
Bank of Japan
Bank of Canada
Swiss National Bank
Reserve Bank of Australia and New Zealand
There are obviously many more. Each country or union is bound to have a Central Bank.
If you are here on read.cash you are very likely enthusiastic about digital currency. Still, there is some confusion about digital currency, which I hope to clear up here. I sure like to know all the terms and meanings of the terms before I start using them. I might use them incorrectly and mark myself as an idiot at worst, or be extremely embarrassed at best.
Digital Currency
Digital Currency is any currency, money, or money-like asset that is stored, managed, or exchanged digitally, especially over the internet. Some examples of digital currency are cryptocurrency (YAY! Three cheers for BitCoin Cash!), virtual currency (which is just another way of saying cryptocurrency in my book - but I could be very wrong - please correct me in the comments if I am), and Central Bank Digital Currency.
Central Bank Digital Currency (CBDC)
CBDC is a token or electronic record representing the fiat currency of a country. nation or region. It is centralized and regulated by the country's monetary authority, such as The U.S. Federal Reserve. It is a digital token of U.S. Dollars or Chinese Yuan.
So, what Wall Street Banks are super worried about is that the implementation of regulated, centralized tokens of fiat money will create a situation that causes the global financial markets to run in an abnormal way, and will crash spectacularly.
The reason Wall Street is concerned about it right now is that China, which has been developing CBDC, has given away millions of digital Yuan and has begun real-world trials of its Digital Yuan in Shenzhen, Chengdu, and Suzhou.
China is already reliant on electronic payment by QR code so this step isn't really a big one. I don't know when they will roll out the digital Yuan nationally, but I can tell you Wall Street Banks are shaking in their lizard skin boots.
If you liked this article, or if I got anything wrong, please let me know in the comments.
All images in the public domain. Lead image by Eric Prouzet on Unsplash
literally great research