The Bank of Montreal (BMO) has announced customers will no longer be able to use BMO Mastercard credit cards to purchase digital currencies. This is the second bank to take this action after TD Bank banned digital currency purchases last month

Scotiabank has also declared a review of its digital currency transaction policy. Royal Bank of Canada is still allowing purchases but has warned that fluctuations in digital currency values could leave customers exposed to losses.

The BMO announcement was confirmed to news outlets via an email from a spokesperson, though there is currently little from BMO about their reasoning for the decision.

Banks are seeking to minimize financial and legal risk

For the most part, credit card bans of digital currency purchases in Canada and the U.S are an action to reduce the theoretical financial and legal risk to both bank and customer.

Digital currency price volatility and the current decline in price are causing concern for some investors and financial institutions. Though the falling price of digital currencies is expected to reverse at any time, banks are unwilling to take undue risk on a very untested digital currency market.

Investors should also exercise some caution with this new asset class, taking time to understand the volatility of the digital currency markets, and the implications for them over the short and long term.

The U.S began the trend of digital currency purchase bans in 2018 and was closely followed by Canada. By February 3rd, all top five U.S credit card issuers had banned digital currency purchases. JP Morgan was the last, citing high volatility and risk as the reasons behind their decision.

This move could almost be a seen as a good thing for some, as banks typically don’t let customers purchase stocks on credit cards. A ban on digital currency purchases with credit cards may indicate banks see digital currencies similarly to stocks.

BMO blockchain application

BMO may well be seeking to reduce exposure to the risks associated with buying digital currencies, for themselves and their customers. However, like many other financial institutions in Canada and worldwide it is actively pursuing blockchain solutions for its infrastructures.

Four banks, including BMO, partnered with IBM and UBS on October 4th, 2017, to build a global trade platform based on blockchain technology. The platform, titled Batavia, is a progression of the work by UBS and IBM to develop a trade finance platform on the IBM Blockchain Platform which utilizes the Hyperledger Fabric Blockchain framework.

Batavia is just one example of many blockchain applications and adoptions by well-known global banks who aim to lever the security and speed offered by blockchain technologies, originally developed as the backbone to digital currencies.

Image credit: BMO logo

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