Shaking the future of banking

IN recent years, the way banks operate has been shaken by the revolution led by financial technology or fintech giants and independent digital currencies. It is hard to overstate the consequences of this revolution and to understand them, so we have to go back to the fundamental principle of banking - the "art of making money" or fractional-reserve banking.

Centuries ago, banks' business models were structured to keep and safeguard gold deposits for the wealthy. Bankers have considered it unlikely that all wealthy people would claim their gold deposits at the same time, so they began to lend gold deposits to people and businesses needing extra leverage. Such business models "created" money for banks in the form of interests and allowed idle assets to be utilized for new businesses. Since the transfer of gold deposits is inconvenient, banks started issuing banknotes. Banknotes were exchanged, which in effect made the amount of money in circulation worth more than gold deposits kept by banks. Hence, "new" money was created.