Blockchain is the future. This statement has become a fact in recent months, and it is simply a matter of time before it is fully implemented into our financial system. The question we are faced with is simple: What will be the impact of Blockchain on Central Banks?
The argument presented by many technology websites is that Blockchain technology will free up billions of dollars for banks, in turn revolutionizing the finance industry. Financial institutions will completely change their system, a system that has been in place for over one hundred years.
Four major banks are at the forefront of the Blockchain revolution. UBS Group AG, Bank of New York Mellon Corporation, Deutsche Bank AG, and Banco Santander S.A. are teaming up in order to create a digital-only payment system that will improve trade settlements immensely.
This system will provide generous cost savings because it will allow back-office settlement systems to process trades far more rapidly than they do today. It is going to streamline the process and make it more efficient. Experts in the industry estimate that financial institutions spend over $65 billion each year to clear and settle trades.
This is where we get to Central Banks. All of these predictions about broad success and cost-savings will only work with adoption central banks. The Federal Reserve, the Bank of Canada, and the Bank of England have all launched investigations into digital currencies, questioning the security of digital currencies, and also the stability of the banking system.
If the plan succeeds, it will save billions of dollars for banks, however, for that to happen, the system would need to obtain approval from central banks.
The Dutch central bank is one that the Federal Reserve should be taking some notes from. They have begun developing an internal Blockchain prototype that they hope to launch in the next year. The Bank of England is not far behind, with the deputy governor for monetary policy, Ben Broadbent, indicating that a central bank-issued digital currency is soon to come. It will allow for the ability of banks to extend loans should consumers migrate to the digital currency. Researchers in the United Kingdom have also proposed a new cryptocurrency that the Central bank might look towards adopting. The French central bank said that distributed ledger models will replace the traditional operating mode clearinghouses.
Here you can see how the Hong Kong central bank is looking to leverage Blockchain!
One thing is sure for the future, the Central Banks will make sure to keep their leverage throughout the expansion of Blockchain.