Big governments will lose seigniorage income—the benefits derived from printing money, and they will lose the ability to control the economy, as discussed in a previous piece here.
Losing the ability to handle the money that flows between central banks and the economy is at the core of the banking business and the very existence in the monetary economy. A Bitcoin economy, for instance, can promulgate peer to peer lending that substitutes traditional lending, where banks collect the “interest rate spread,” the difference between the interest rate they charge depositors and the rate they charge borrowers.
Still, Apostolos Pittas, adjunct professor of economics at LIU Post sees Bitcoin lending supplementing rather than undermining the traditional banking system. “Digital currency, as is the case with Bitcoin, helps to smooth the lending process. Recall what happened in 2007-2008 during the financial crisis. Credit dried up as banks stopped lending, and the markets froze. With a digital currency like Bitcoin, lending is decentralized, or peer to peer, and as a result, lending may continue, allowing money to reach those who need it."
Simply put, the rise of Bitcoin can be a stabilizing rather than a destabilizing factor for the financial system, Apparently, big government and big banks do not see things that way at the moment.
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