Central banks resist new technology, but the World Economic Forum published a white paper suggesting they may become early adopters of blockchain and blockchain technology (DLT). Dozens of cen
Central banks resist new technology, but the World Economic Forum published a white paper suggesting they may become early adopters of blockchain and blockchain technology (DLT). Dozens of central banks across the globe are testing whether DLT can address banking challenges and boost financial inclusion. A January 2019 report from the Bank for International Settlements found at least 40 central banks researching or planning to research central bank digital currencies (CBDC).
Over the next four years, the WEF predicts many central banks will decide whether to deploy blockchain and DLT. Their decisions carry weight. The WEF noted they will have "far-reaching consequences on financial and monetary systems, domestic economies, and the welfare of citizens." The technology could improve efficiency, financial inclusion, resiliency, and security in financial systems.
The white paper, "Central Banks and Blockchain Technology: How are Central Banks Exploring Blockchain Today?", details ten blockchain use cases under exploration:
Retail CBDC is a peer-to-peer, decentralized digital currency issued by a central bank and accessible to the public. Sweden's Riksbank is investigating an "e-krona" as cash usage declines across the country.
Wholesale CBDC serves commercial banks and clearing houses on a blockchain network.
Interbank securities settlement uses blockchain-based digital currency to speed clearing and settlement between banks. Germany's Deutsche Bundesbank is testing DLT through its BLOCKBASTER prototype to streamline and reduce risks in settlement processes.
The Central Bank of Brazil is exploring DLT for domestic interbank payments and settlement.
Bond auctions, issuance, and other lifecycle processes can run on DLT infrastructure.
Digital KYC and anti-money-laundering processes can track and distribute customer payment and identity data across institutions.
Institutions share information on distributed networks connecting government and private sector bodies.
Trade finance moves through the system in less time and reaches more participants. The Hong Kong Monetary Authority has conducted experiments with trade finance, digital identity, and KYC/AML processes.
Central banks can track cash from production to their branches and commercial bank branches using DLT.
The Bank of France completed MADRE, a blockchain system that replaced its centralized SEPA Creditor Identifier provisioning with a decentralized solution.
The paper finds that emerging market central banks stand to gain the most. Where legacy financial infrastructure is underdeveloped, CBDC and blockchain applications can help achieve greater financial inclusion.
