The relationship that digital currency users have with fiat money is not distant or remotely hostile despite some assertions to the contrary. The same is true of the relationship between Bitcoin and banks.
People who use bitcoins and other digital currencies are not attempting to triumph over greenbacks or spearhead the wholesale abandonment of dollars, yen, yuan or euros, in favor of a new system of finance. In fact, banks will be a key element in a multitude of transactions that involve converting digital currencies into fiat money.
Since money is fungible and the routes of global commerce repeatedly intersect and overlap, the acceptance and exchange of various currencies including bitcoins will be processed and directed in some form by banks around the world. For example, workers in Texas might be paid in dollars that they convert into bitcoins to send to their families, who in turn exchange the bitcoins for pesos. None of this money is static, even if its paper equivalent temporarily stays in a person's purse, pocket or wallet.
Nowhere is this fact more obvious than in the rise of cryptocurrency trading platforms and exchanges like meXBT.com, which appeal to foreign workers sending remittances to relatives overseas or across the border. The latter exchange, incubated by Seedcoin a global network of digital currency and financial technology start-ups is the first of its kind in Mexico, with plans to include other countries in Latin America.
The very existence of meXBT.com highlights the critical role banks play in the digital economy. The World Bank reports that Mexico is the fourth-largest spot for remittance payments, totaling approximately $22 billion U.S. dollars in 2013.
The Migration Policy Institute reveals that nearly 11.6 million Mexican immigrants resided in the United States up from 2.2 million in 1980 and Mexicans accounted for 28% of the country's 41.3 million foreign born. California and Texas remain the two most popular destinations for these immigrants.
Banks play a crucial part in this exchange because workers use these institutions as a way to deposit and transfer their earnings (in dollars or other paper currencies) overseas, where it is then withdrawn and converted elsewhere into bitcoins for use among local merchants and major retailers.
The overall size and daily volume of these remittances corresponds to a flourishing environment for Bitcoin in locales like Mexico City and Cancun. In fact, more than 130,000 businesses in Mexico, including brands such as Wal-Mart and 7-Eleven, now facilitate a quick exchange of cash for bitcoins.
As this phenomenon expands southward and enters Colombia, Chile, Peru and other countries, Bitcoin and banking will become more economically connected.
The signs are unmistakable: ATM machines equipped to process Bitcoin, as well as Dogecoin and Litecoin, are already in Tijuana. The very existence of these kiosks points to a closer bond with the banking industry. Given the increased circulation and conversion of fiat money into digital dollars (or vice versa), banks will act as much-needed depositories for paper currencies.
Today banks are not mere warehouses of dollars, a storage center where ornate vaults and layered rings of six-inch thick stainless steel safeguard various denominations of American currency.
When money is deposited or withdrawn, it is immediately put to work by bankers, investors, traders, merchants and consumers the world over. The combined use of local currencies and digital currencies can expedite these cross-border transfers.
That opportunity is essential, particularly in areas where strict capital controls or the scarcity of international currencies, including U.S. dollars, make it very difficult for workers to send money to their families.
American bankers can make this endeavor real and worthwhile by working with clients or firms that use bitcoins. Such partnerships, formal or informal, will hopefully flourish in the years to come.
Hayden Gill is the founder of Buzzdron Media, a digital marketing and design agency, and of MOG Sales, a virtual currency broker for online games. An expert concerning the use of bitcoins for online transactions and e-commerce, Hayden can be reached at firstname.lastname@example.org.