Top Five (5) Blockchain Technology Use Cases For Central Banks
The coming of Bitcoin, Altcoin and blockchain technology has met with so much criticism in the early days. The new innovations these digital currencies came with were hugely criticized especially by financial institutions and central banks in general. The outright criticisms are embedded in the realization that blockchain technology offers financial autonomous and anonymity such that it takes away or reduces the efficiency of centralized and age long financial-monetary system. Like no one wants to be out of business, so the fear of the banks for bitcoin was understandable. The narrative, however, tends to be changing now as more central banks of countries are now experimenting with Blockchain technology and this article highlights five (5) use cases that Blockchain technology would boost central banks operations.
Central Banks New Crave To Join The Blockchain Train
Regulations of cryptocurrencies is a frontline challenge for central banks because of the high encryption of the blockchain system and the possibility for cybercriminals to get away with financial fraud. The fight for regularization to an extent has contributed immensely to the rise and fall or volatility of digital currency price in times past. Prices soar when news are favorable and it dips with an unfavorable news loom. It is obvious that Financial Institutions cannot win the war to alienate cryptocurrencies and it’s a good judgment for them to create a niche where they can have a good control and this is gradually boosting the acceptance of blockchain innovations across the board.
According to a January 2019 report by the Bank for International Settlements (BIS) in Basel, Switzerland, at least 40 central banks around the world are currently, or soon will be, research and experimenting with central bank digital currency (CBDC) and other applications of blockchain.
The Blockchain and Distributed Ledger Technology team at the World Economic Forum interviewed dozens of central bank researchers and analyzed more than 60 reports on past and current research efforts. The findings were released on April 6, 2019, in a white paper titled “Central Banks and Distributed Ledger Technology: How are Central Banks Exploring Blockchain Today?” The findings in the whitepaper highlights amongst others the following 5 use cases of blockchain for Central Banks:
Trade Financing: Trade finance as is currently being regulated by Central banks is paper-based, labor and time intensive, three factors that makes trade financing ineffective. The Hong Kong monetary Authority is currently seeking to replace this paper-based trade finance model with a blockchain backed digital system to ensure a faster, more effective and an all-inclusive system while harnessing the confidentiality that’s offered by blockchain systems.
Know Your Customer and Anti Money Laundering: Through digital Know your customer assessment offered by the blockchain technology, Central Banks can gather the authentic data and identity of customers to help streamline processes. This KYC can also be linked to a National Database that can be harnessed for proper transparent documentation. KYC would help reduce the incidence of money laundering in financial transactions.
Information Sharing and Data Exchange: there are existing blockchain innovations targeted towards data assurance such as those offered by the SCRIV network, but the Central Bank of Brazil is currently experimenting the use of distributed or decentralized databases to create alternative systems for information and data sharing between or within related government or private sector institutions. A great way to ensure data assurance.
Central Bank Digital Currencies: The primary purpose of blockchain systems is for financial transactions and the Central bank of governments of Japan, Cambodia, South Africa, Canada etc. are already proposing to create a digital currency for peer to peer transactions even in a decentralized system. A true breakthrough for the Blockchain ecosystem.
Cash money supply chain – The use of distributed ledger technology for issuing, tracking and managing the delivery and movement of cash from production facilities to the central bank and commercial bank branches. These series of operations could include the ordering, depositing or movement of funds, and could simplify regulatory reporting. Central banks exploring this include the Eastern Caribbean Central Bank.
The era is coming where Blockchain and digital currencies would take over financial transactions all over the world, these forecasts have seen more proponents in recent years. These highlighted use cases would unarguably boost the operations of Central Banks and once central banks get onboard, the digital currency space, current stakeholders would definitely laugh last and laugh well then.