Digital Currencies and the Changing World of Banking
I Lead
in.
A.
Take 1 minute to think about your associations
with the phrase ‘(commercial) banks’ and write down your ideas.
B.
Compare your lists of associations with other
students. What similarities and differences do you have?
C.
Do you
use bank services? Are you happy with the way banks work in your country?
D.
Do you use online payment systems? What online
systems do you use or know?
E.
How do you think the banks will change in the
future?
II
Match the words to their definitions. Use four words in your sentences.
|
1.
|
currency |
A.
|
a statement that
shows a company’s assets and debts |
|
2.
|
consumer |
B.
|
to produce
officially |
|
3.
|
fractional reserve banking |
C.
|
money that is not invested and earns no interest or investment income |
|
4.
|
to claim |
D.
|
something valuable
that can be used for the payment of debts |
|
5.
|
to loan |
E.
|
to make something
stronger |
|
6.
|
interest |
F.
|
type of money a
country uses |
|
7.
|
idle deposit |
G.
|
to lend money |
|
8.
|
to fuel |
H.
|
someone who buys
and uses products and services |
|
9.
|
to issue |
I.
|
the practice of holding a portion of customer deposits in bank
reserves and giving out the remainder |
|
10. |
asset |
J.
|
the extra money that people
must pay back when they borrow money |
|
11. |
balance sheet |
K.
|
to demand money
because it belongs to you |
III Watch the video and fill in the gaps with the words from the list. There are some words you don’t need to use.
monetary; economy; fiscal; fundamental; gold; engines; principles; investors;
digital; banknotes; invested; business; circulation; financial; businessman; money;
account
Banks are one of the 1) ______ of the modern economy, but
the way they work is under threat. Tech-payment giants and 2) ______ currencies are revolutionising how people use money. And
this could have dramatic consequences far beyond banking. It could affect
consumer privacy, government power, and the stability of the entire 3) ______ system.
It is difficult to overstate sort of how
radically different that world could be from the one that we live in now.
So what would a world
without banks look like, and would you even miss them?
The fundamental 4) ______ of banking have been the same
for centuries and revolve around the
greatest magic trick of all: how to create 5)
______. It’s called fractional reserve banking. Here is how it started.
Hundreds of years ago banks stored gold for 6) ______. But they realised it was unlikely everyone would claim
their 7) ______ back at the same
time. So they began to loan some of these gold deposits out to other people.
This made money for the bank through interest and helped power the economy by
allowing idle deposits to fuel new 8) ______
and trade.
As time went on, the
banks started issuing 9) ______ or
IOUs — rather than physically giving out gold.
And these IOUs started being traded in the economy. This meant the
amount of money in 10) ______ was
much larger than the value of the gold held by the banks. So the banks’ lending
had in effect created new money.
Nowadays, most money
is digital. When the bank makes a loan, it creates a new asset on its balance
sheet and credits the borrower’s 11) ______
with new funds which creates a new deposit. The 12) ______ principle is the same. Every time the bank makes a new
loan it creates new money. In fact, 90% of money in the world is digital
deposits that have been created by banks in this way. This is hugely important
for the 13) ______.
1.
Governments are revolutionising how
people use money.
2.
The fundamental principles of banking
revolve around creating money.
3.
Hundreds of years ago banks stored
banknotes for investors.
4.
Banks began to use their gold deposits
to create coins and give it to other banks.
5.
As time went on, the banks stopped
giving out gold and started issuing banknotes or IOUs.
6.
The amount of money in circulation was
much larger than the value of the gold held by the banks.
7.
The banks’ lending created new money.
8.
Nowadays, most money is digital.
9.
Every time the bank makes a new loan
economy loses money.
V Match the words to their definitions. Use four words in your sentences.
|
1. |
supply |
A. |
something that people promise to give if they cannot pay back
money they have borrowed |
|
2. |
interest rate |
B. |
the capital of the
company |
|
3. |
intangible asset |
C. |
(gross domestic product) the
total value of all goods and services produced in a country, in one year |
|
4. |
software |
D. |
to get lower in
number |
|
5. |
security |
E. |
the amount of
something available to use |
|
6. |
equity |
F. |
computer programs |
|
7. |
GDP |
G. |
the per cent people
pay to the bank when they borrow money |
|
8. |
to recede |
H. |
asset that is not physical in nature, such as a patent, brand,
trademark |
VI Watch the video and choose the correct option to complete the
sentences.
What it means is that
banks are able to respond to commands/demands/demons
for money in an economy. And that means
that the apply/reply/supply of money
in the economy is very elastic.
There is no set
amount of money in circulation. So if the economy is booming and more goods/goodies/gods are being created,
then thanks to fractional reserve banking the supply of money should also
increase, as people take out loans and make new investments/invested/investor. The ease with which commercial banks
can create money is largely controlled by central banks like the Federal
Reserve, which set interest rates. If interest rates are high, banks pass those
costs onto borrowed/bellows/borrowers. This makes it more expensive for them to
borrow money to buy things, and so banks create less new money.
Central banks also
supply money for use in the economy. They print the physical paper clash/dash/cash people carry around.
And so banks and central banks balance the need to create money between them.
That sort of balance
means that, you know, money can grow easily with demand, but also that the
central bank has sort of a direct presence in payments and transactions/translations/transistor.
But this delicate balance is under threat
thanks to revolution/resolution/evolutions
in the way people use money. For a start an increasing number of businesses no
longer rely on banks for loans. This is because businesses historically used to
create concise/repeat/ concrete
assets —like machinery - against which banks were happy to lend. They could always claim the assets if the
borrower stopped repaying.
We know you are
reliable.
I’m glad you think so.
But intangible assets like software can’t
easily be posted as secretly/security/maturity
for a bank loan.
The world has shifted
in a way that does makes it hard for banks to fund the, sort of, most innovative/innovators/innovator parts
of the economy. If you want to get funding as a Silicon Valley get up/ start-up/set up, in general,
you’ll need to go to people who are equity investors, so they take a slice of
your business in return for some money.
And it is not just
innovative start-ups that are turning elsewhere for fundamentally/funding/funded. Since the 1950s the share of bank
loans as a percentage of GDP has been relatively stable. At the same time,
non-bank loans and securities have risen sharply/sharper/sharpener.
This means the role banks play in financing important businesses is receding.
And that’s not all.
VII
Watch the video again and answer the
questions.
1.
How do banks influence the amount of
money in circulation?
2.
What organizations control commercial
banks when they create money?
3.
What do central banks do to control the
amount of money?
4.
What kind of assets did banks use as a
form of security in the past? How has the situation changed?
5. Do innovative start-ups use banks to borrow money?
VIII Match the words to their definitions. Use four words in your sentences.
|
1.
|
transaction |
A.
|
a type of computer program |
|
2.
|
wallet |
B.
|
in a foreign
country |
|
3.
|
stocks and shares |
C.
|
very strong |
|
4.
|
app |
D.
|
parts of company ownership that people can buy |
|
5.
|
overseas |
E.
|
a business deal or
action |
|
6.
|
acute |
F.
|
a small case for
carrying paper money and credit cards |
1.
One of the most popular new mega-apps
is Alipay from _____ tech giant Ant Group.
a)
Chinese b) China c) chosen
2.
Alipay customers carry out transactions
by loading money into digital ___________.
a) accounting
b) wallets c) cash
3.
They can buy lunch or investing in
_________ without leaving the app.
a) stocks and shares b)
innovative start-up
c) government bonds
4.
And rather than paying expensive
international transaction fees to their bank, Alipay users can also use the app
_____.
a)
overdraft b) overheads c) overseas
5.
Facebook is developing its own _____
_____ and Amazon is also working on financial services.
a) digital currency b)
digital stocks c)
digital fees
6.
Some worry this could concentrate too
much ____ in the hands of a few tech companies.
a) powerful b) power c) powered
7.
The super apps in China now do
provision of loans, provision of investment services, they provide ______.
a) insured b) insurance c) assure
A.
A central bank digital currency — or CBDC — is a bit like digital cash
as it gives the consumer a direct relationship with the central bank.
B.
CBDCs are used or tried in several of countries worldwide, but they’re
growing fast.
C.
Some central banks have taken radical action by creating their own
digital currencies to rival the tech giants’ payment systems.
D.
The Bank for International Settlements, which is a club of central
bankers, says that within three years a fifth of the world will live in
countries that have this central-bank digital money.
E.
Most central-bank money is held by commercial banks as reserves against
customer deposits. Customers can only access a small amount of this
government-made money via physical notes and coins.
F.
China is one of the largest economies leading the way by trialling a
digital yuan.
G.
But digital currency issued by governments might be even more radical.
H.
Physical cash is issued by the central bank.
XI Watch the video. Complete the sentences with the words you hear.
This could change
everything. If everyone put their money into a CBDC, then fractional 1) ____
_____ could potentially be out of a job. This could affect economic growth,
as they could not rely on consumer 2)
_____ to finance their loans. And this would be particularly pronounced in
the 3) _____ world where most
lending still comes from banks. But that’s just the beginning.
There are also
concerns about potentially, you know, cyber-warfare. Because if you can take down
the servers that support the central bank digital-wallet system, then you could
shut down an entire 4) _____.
Digital currencies
could also increase the potential for state intervention in everyday
transactions.
It becomes much
easier for 5) _____ to completely
block your ability to pay for something. It’s very easy to imagine that, you
know, perhaps you could program, you know, money in China, so that it can’t be
used to pay for books or newspapers from 6)
_____ sellers.
Supporters of CBDCs
claim they could lead to a world where more people have access to financial 7) _____, and it’s cheaper and easier
to move money across borders. But innovations like this could also disrupt the
financial equilibrium and give governments far greater 8) _____ over their citizens’ money and lives. So, although it’s
possible for the first time in modern history to imagine a world without 9) _____, you might just find you’d
miss them if they were gone.
XII
Watch the video again. Are the sentences
true (T) or false (F)? Correct the false statements.
2.
In the developing world most lending
still comes from banks.
3.
If there is an attack on the servers
that support the central bank digital-wallet system, then an entire economy
will suffer.
4.
Central bank digital currencies could
also end the state intervention in everyday transactions.
5.
With central bank digital currencies it
is easier for governments to completely block clients’ ability to pay for
something.
6.
Supporters of CBDCs claim digital
currencies could lead to a world where only very rich people have access to
financial services.
7.
Central bank digital currencies make it
cheaper and easier to move money across borders.
8.
Central bank digital currencies could
give governments far greater control over their citizens’ money and lives.
across; under; at; in; out; to; out; in
1.
Banks are one of the engines of the
modern economy, but the way they work is _____
threat.
2.
Hundreds of years ago banks realised
everyone would not claim their gold back ____ the same time.
3.
The amount of money _____ circulation was much larger than
the value of the gold held by the banks.
4.
People take _____loans and make new investments.
5.
Alipay customers carry _____transactions by loading money into
digital wallets.
6.
Customers can then do anything from
buying lunch to investing _____stocks
and shares without leaving the app.
7.
Digital currencies could lead to a
world where more people have access _____financial
services.
8.
In future it would be cheaper and
easier to move money _____borders.
XIV
OVER TO YOU. Think of the world without banks. Get
ready to discuss the benefits and drawbacks of having no banks and using
digital currency. Use the questions below to organize your ideas:
A. Do
you think it will it be easier to carry out financial transactions with no
banks? Why or why not?
B. Do
you think that it would be easier to use digital money and not paper cash and
coins? Why?
C. Will
more people in the world have access to banking services? How will the use of
digital currencies influence the life in the developing countries?
D. What
are the dangers of having central bank digital currencies (digital currencies
controlled by the government)?
E. Would
you like to use digital currency in your country? What benefits will it give to
you as a customer?
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