5 minute read
My Two Cents
MY TWO CENTS by Debra Stamper KBA Executive Vice President & General Counsel dstamper@kybanks.com
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These are times of economic confusion. Our national debt is so large that pundits wonder if it really means anything anymore. Recovery bills pass Congress boasting over a TRILLION dollars in aid as if we have a money tree in DC. The stock market reacts more to trends and viral videos, rather than to financial data. And it isn’t just in the United States. It feels like the entire world is “banking” with play money. Everyone except banks, that is. Banks still have to play by very strict rules while other “financial” systems are giddy with the overwhelming sense of immortality.
Let’s look first at Bitcoin. Do you really know what Bitcoin is? Bitcoin is just one of many crypto-currencies—crypto for those in the know! There are others—Ethereum, Litecoin etc. Regardless of which one you look at; they are all the same thing—a crypto dream. Right now, Bitcoin is the favored crypto, “trading” at over $58K per Bitcoin at the time I am writing this. And, why this value? Because someone is willing to pay that amount for it—although very few purchase an entire Bitcoin. Despite hopes and dreams of traders, Bitcoin is backed by nothing and isn’t even traded on a regulated exchange.
The Fed has looked at the need for a crypto-currency as part of the legally accepted payments system, but has decided that faster payment transactions—real time—are more valuable. And, the Fed has made it VERY CLEAR that if a crypto (or as the Fed likes to call it, a digital currency) is needed, it WILL NOT be Bitcoin or any of the other cryptos that have been developed outside the rules and security of the Federal Payment System. This position is taken for a number of reasons, the first of which is the fact that Bitcoin is backed by nothing and is not legal tender. No one is required to accept it and there is no way to “cash out” unless you can find another private borrower. (Think about this, if you forget the password to your crypto wallet or if someone steals your computer, you have lost the entire value of your holdings.)
Bitcoin has been the digital darling for quite a while and some companies are even paying employees with Bitcoin. I wonder how that sits with an employee—you get “paid” with $500 in Bitcoin (or Bitcash) and by the time you are able to convert it the value has reduced to $450. It seems like a budgeting nightmare. I guess some will spend it with companies that accept Bitcoin, but there must still be a transactional settling up—sort of like when you go abroad on vacation and come home to realize that the miniature Eifel Tower that you thought was $5 dollars was actually $5.89 plus conversion fees.
The oddest thing to me is how long the Bitcoin train has continued to run. I keep thinking that it will eventually crash, but it doesn’t; and, THEN I hear of a new crazy concept of value. It is the NFT (non-fungible token).
WHAT IS AN NFT?
An NFT is something that is unique and cannot be replaced with another same item, although it has a sense of value so you can trade it for something different. In the real world, you could consider an original Van Gogh painting as an NFT. You can trade the Van Gogh for money or for another NFT, but you cannot trade it for the same Van Gogh. In the digital world NFTs are a little more confusing. You have to consider the word “token”. A token is generally defined as some item that represents another item. For instance, a one-dollar bill is a token for the underlying value of $1. An NFT, in the digital world, can be anything digital that you purchase. The buzz right now is NFTs in the digital art world.
I can’t explain it further than that other than by providing examples. Just this month someone purchased a digital art work for more than $60 MILLION at Christie’s (see above).The purchaser can print and display this digital file. He can also send copies to all of his friends on a digital Christmas card if he wants. But the original digital file is his alone. The co-founder of Twitter has sold his first tweet (which by the nature of Twitter is already in the public space) for over $3 Million. WHAT??? Yet another artist sold thousands of digital files of a piece of digital art (I guess like the concept of prints) for a mere $4K each and made a pretty good take on it.
I guess I am showing my age, but I just can’t wrap my head around the value of looking at a digital piece of art that I own on my laptop, as opposed to seeing it on my wall. If you want to go down a rabbit hole, just google “NFT marketplaces” and look around at what you can buy. But, now, back to the real world.
Congress is pushing to legislate bank accounts for the unbanked. Some are even advocating for the federal government to offer and manage simple, no fee bank accounts for the unbanked. Neither financial institutions, nor banking regulators, want either of these plans to happen. So, the Bank On Movement was started. Under the standards set by Bank On, virtually all core service providers have agreed to offer qualifying accounts. Bank On accounts are low cost, basic accounts. When a consumer opens a Bank On account, they can be certain of certain features, such as low or no fees, no overdraft charges and online bill pay. The purpose of this program is to get the unbanked into the banking system, while keeping Congress from passing unnecessary bills to get it done.
If your bank already offers these basic accounts, make sure that they are Bank On Certified. If you are not sure, talk to your core provider or go to joinbankon.org.
KBA_ halfpg_2020_v3.pdf 3 8/14/2020 8:35:51 AM I hope this helps eliminate some of the economic confusion that is out there. There’s a lot to take in, and it changes every day. If you have any questions, don’t hesitate to email me.
Count on us…
JAMES BROWN James Brown has over 25 years of banking experience in Retail, Small Business, Corporate and Correspondent Banking.
(502) 625-9330
james.brown@syb.com
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