About 86% of the central banks including Bank of America and the ECB, are busy delving into the development of CBDCs to defend their territories from the evasion of Bitcoin and other digital assets.
The coming of cryptocurrency has been seen by traditional banks as a way to get them eliminated from the financial and payment industry. This leaves a big threat to banking. Most financial institutions are now getting tough on cryptocurrencies.
Financial institutions, especially offshore banks, are very cautious about crypto asset investors because they deposit huge amounts of money in banking institutions and then transfer it out to a digital wallet or a brokerage house, which converts it to cryptocurrency without being monitored or regulated.
As it is the obligation of the banks not to be part of any sort of illegitimate activity, some illicit investors don't see it like that. Criminal investors have used this gap in the regulation system as an opportunity to carry out money laundering by sending wires to different parts of the globe trying to wash the fiat currency or conceal its real origin.
Banking institutions hate cryptocurrencies because they incur large compliance costs owing to the variety of checks and investigations required. For instance, banks should conduct investigations on large deposits made by investors and beneficial owners of the accounts and the origin and source of the funds.
Cryptocurrency investors don't normally keep or hold more money in bank accounts. Instead, they channel it to buy and hold crypto assets on different exchanges and wallets. Banks profit from the customer’s deposits, so if the investors don’t hold their money in banks, then the banks are not doing any business.
Also, in the recent news about South Korean banks showing a red light to cryptocurrencies, it has been found out that giant digital currencies like Bitcoin cause big risks to minor and new virtual coins. This is because these popular cryptocurrencies are given much attention by most largest crypto exchanges, a thing that gives them a massive trading capacity over the minor cryptocurrencies hence causing an imbalance in the nascent industry.
The banks in South Korea are now recommending the safety of cryptocurrencies, and this can be achieved by limiting the number of digital assets being traded on a single exchange. It has been revealed that exchanges dealing with a forest of cryptocurrencies tend to take on more risks: they might be hacked, attacked by ransomware, lose money due to an error, security vulnerabilities, and many others.
However, most banks are now in high gears of screening cryptocurrency exchanges over matters of money laundering. They want to take full control to monitor the financial soundness of digital currency exchanges willing to partner or do business with traditional banking.