Sharon Keogan (Independent) | Oireachtas source

I am delighted that the Leader has allowed us this opportunity to make statements on the future of banking as it gives me an opportunity to talk about an extremely important area of finance which has not received nearly enough attention in this country. I thank the Department for acting so swiftly to support borrowers since the Covid-19 pandemic started, with payment breaks for businesses and homeowners. I welcome the scrutiny that our banking sector will face with a regulatory and supervisory framework put in place by the EU. My colleagues will no doubt deal with the KBC and Ulster Bank issue, and the lack of competition in the market for citizens.

For my part, I would like to focus on one aspect of banking which is very much in the future. I speak, of course, of cryptocurrency and the possible impact of a decentralised monetary system on traditional banking. Broadly speaking, a bank performs two economic functions. It operates a payment system and it engages in financial intermediation, lending and investing either the money we deposit with them or the credit they themselves create for businesses, enterprises, households and governments. The second function is the business side of banking. Banks are profit-seeking corporations with stockholders which provide the equity capital needed to start and maintain a banking business. As with any business, there is a level of inherent risk. What happens to the banking system and the economy if many borrowers cannot and will not repay their loans? What happens if, in the pursuit of profits, banks do not maintain levels of reserves and capital consistent with their own stability? Those are questions which, in this country, are no mere thought experiment.

The rise of cryptocurrencies will of course impact on that second side of banking, but it is more the first function that I want to discuss, the operation of a payment system. No modern economy can exist without a fit-for-purpose payment system. It is the bedrock for the exchange of all goods and services. The global use of national and international currencies has satisfied this requirement for decades. Fiat currencies are a tried and tested system which have their flaws but work when instituted correctly. All of this changes with cryptocurrency and its associated technologies, blockchain and its cousin, distributed ledger technology, a combination of which could render traditional banking completely obsolete. The reason for this, in simple terms, lies in the fact that cryptocurrencies use blockchain technology to avoid the need for a trusted third party, that is, a bank. In traditional banking, the banks act as that trusted third party. If I wire you money, the bank takes it from my account and puts it into yours. If it took it out of mine and did not put it into yours, it would disappear. If it put it into your account but did not take it out of mine, I could spend it twice. The so-called double spending problem, first identified in 1982, was solved in 2008 with the advent of blockchain. I will not bore the Minister with the details but I point to Satoshi Nakamoto's 2008 white paper, "Bitcoin: A Peer-to-Peer Electronic Cash System". It is essential reading for anyone seeking to understand the cryptographic design of blockchain technology.

The threat that this poses to traditional banking cannot be overstated. Our banks and our Governments can no longer ignore what is happening with cryptocurrencies. We must adopt them and adapt them or we will be left behind. I am sure, as I have been speaking, that some Members may still be thinking that all of this is a fad and that it will collapse, being the Dutch tulips of our century. I can empathise with that viewpoint. History is littered with failed projects which were heralded as the future. The statement that cryptocurrencies are the future was optimistic in 2009. It was understandably positioned in 2015. In 2021, it is simply the truth.Each generation is presented with a handful of gold rush moments, times where massive change provides incredible opportunity for those ready and willing to take them. Each of those moments has naysayers. I recall the infamous quote from a Nobel laureate: "By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's." The advent of cryptocurrency is the gold rush of our time, the reprise of the dot-com boom in an entirely new way. Are we ready?

Ireland enjoys a reputation as a tech capital of Europe. Thanks to international IT giants such as Google and Apple, as well as the native start-ups that are gathering momentum and that have accelerated economic recovery and growth in recent years, if anyone is going to be ahead of the curve on cryptocurrency it should be us. When I say "ahead of the curve" I do not mean multinationals, tech giants or offshore funds. They have woken up to this. It took them a while but the big players have wisened up to what is going on. They are going to make their money as they always do.

In September 2017, JP Morgan Chase CEO Jamie Dimon said of bitcoin:

It's worse than tulip bulbs [referring to the 17th century Dutch tulip market bubble] it won't end well. Someone is going to get killed.

That was four years ago. The banking giant recently predicted that bitcoin's price could go above $146,000. Its own strategist led by their managing director said that the cryptocurrency will get immensely popular and bitcoin will soon become the alternative to gold. Former Goldman Sachs CEO, Lloyd Blankfein, said:

Something that moves 20% [overnight] does not feel like a currency. It is a vehicle to perpetrate fraud.

Three days ago, an internal memorandum revealed that Goldman Sachs has created a new dedicated cryptocurrency trading team. One by one, every major critic and sceptic is falling and getting on board before it is too late. Where will Ireland be on the timeline? I am asking this of the Irish banks and the Government. What systems are being put in place to account for the changes that will be brought by advances in cryptocurrency? What research and development is being established and funded to ensure that Ireland is not playing catch-up in the late 2020s? Proactivity by the Government on this is essential. Is the Minister talking to the banks on this? What plans does the Government have to embrace digital currency? It does not get a single mention in the programme for Government, which is a baffling omission. The new frontier is the most clear-cut opportunity in a long time for the people of Ireland to increase their lot. It is no exaggeration that Irish debt could be obliterated if the Government plays its card right in the ongoing crypto revolution. We are talking about generational wealth and the necessary replenishing of the Exchequer coffers following the Covid pandemic and lockdowns. I seek reassurance that in ten years we will not say ruefully that we should have acted. If we do not act right now, we should be able to address this urgently.