In its quarterly, the IM F examines how Bitcoin and its blockchain technology may end up helping banks, despite being created to help avoid them.
In the June 2016 issue of the International Monetary Fund’s magazine, Finance & Development (F&D) , it appeared in an article, The Internet of Trust written by Andreas Adriano and Hunter Monroe. The authors explained the trust journey with cash transactions to the impracticality involved in moving large amounts of hard cash around leading to the creation of paper-based, and later, electronic payment systems. Establishing trust
Establishing trust without cash is complex and expensive. Banks require a complex infrastructure to ensure that transactions are fast, reliable and safe at a cost for merchants. Such transactions sometimes involve central banks and can take several days. Even stock markets with virtually instantaneous electronic trades take two to three days to settle transactions and require additional players such as clearing houses. Financial institutions must set aside significant amounts of cash or other liquid assets until the transactions are settled. Making transactions simpler There enters Bitcoin, the authors write: “Bitcoin—or more precisely, the underlying technology that allows it to function, called distributed ledgers, or blockchain—could allow what many see as a radical rewiring of the financial sector.” They explained that the financial industry has tried to solve the problem of creating trust by acting as a trusted intermediary between individuals and companies who do not know each other – individuals and companies pay banks to conduct their transactions because other banks and the central bank recognize one another as trustworthy counterparts. Banks take $1,7 trillion in transaction costs
“It’s great business for them: according to a McKinsey&Company report, banks extract an astonishing $1.7 trillion a year, 40 percent of their revenue, from global payment services. Even more surprising, despite […]
