Central banks have started to look at digital currency more seriously in the last year than ever before. While a central tenet of central banks is to remain conservative and risk-averse, the explosion in usage of blockchain technology has forced many to give digital currencies another look. This is happening far earlier than many had expected.
Central banks already comfortable with blockchain
Distributed ledger technology has been a growing realm of interest for central banks around the world. France, England, Singapore, and Canada have been the frontrunners in the usage of blockchain technology according to a report by the World Economic Forum (WEF). The report looks at how various central banks are exploring distributed ledger technology today.
The central banks from Canda, Franca, and Singapore teamed up to release a report on how digital currencies can improve cross-border inter-bank payments. The report stems from a dissatisfaction in the technological progress of the traditional banking system. Decades-old practices and technologies are still being used today on a massive scale. These technologies have not evolved in the same way that domestic payments and cross-border transactions have.
The meteoric rise of online sales behemoths such as Amazon and Aliexpress is just a small indication of the global nature of commerce. Compared to the brick and mortar days of just 15 years ago, banks and financial systems have simply not been able to keep up. Distributed ledger technology, on the other hand, has shown to be the answer.
The slow pace of change in traditional finance has led to an uptick in the rise of stablecoin and digital currencies for enterprise uses. While this may not mean anything to someone trading in Bitcoin, at least at first glance, it is important for the overall market. When a company like JP Morgan releases a novel Ethereum based blockchain based on the US Dollar, the market moves, they do have competitors in the stablecoin, enterprise market. The Linux Foundation has released Hyperledger Fabric. R3, a company focused on enterprise level blockchain implementation, has its Corda system.
However, these all pale in comparison to the work done in France. The Bank of France has been implementing Project MADRE since 2016. The bank created a blockchain-based solution for a procedure that has long been relatively time-consuming — one where all the banks need to be in constant contact.
This has to do with SEPA Credit Identifiers (SCI). Project MADRE has decentralized and automated the system that EU member state needs to access to identify a creditor while not having to make a reference to a specific account. It is almost 3 years since the launch of the project and it is already handling 100% of all the SCI requests with “smart contracts”.
Digital Currency in the near future
A small report by the Bank of International Settlements stated that “A survey of central banks shows that a majority are collaboratively looking at the implications of a central bank digital currency.” The researchers behind the report feel confident that central banks will start to issue digital currency within 4 years.