World Economic Forum canvassing central banks about blockchain efforts

By April 10, 2019 Ethereum
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World Economic Forum canvassing central banks about blockchain efforts

The World Economic Forum (WEF) has stepped into the crypto fray and is canvassing central banks to determine their involvement in blockchain developments. The WEF was founded in 1971 as a not-for-profit organization in Geneva, Switzerland, with the express mission of improving the state of the world.

Per its website:

The Forum engages the foremost political, business, and other leaders of society to shape global, regional, and industry agendas. It is independent, impartial, and not tied to any special interests.

The Forum has submitted a report outlining its understanding of the current state of affairs related to efforts in the crypto space by central banks, based on repots that have already been submitted. Its initial findings are quite revealing. It appears that Canada, England, Singapore, and France are leading the pack in efforts to find ways to deploy distributed ledger technology to gain efficiencies within their own operating environments. The primary effort seems to be focused upon the possibility of a central bank digital currency (CBDC), managed by a central bank and redeemable “for their respective domestic fiat currency”.

Per one initial report:

Despite central banks historically being risk-averse, a number of different nations have contributed numerous white papers, reports, and investigations into how blockchain technology could improve their operations. In a cursory report from the Bank of International Settlements (BIS), researchers Christian Barontini and Henry Holden wrote that: ‘A survey of central banks shows that a majority are collaboratively looking at the implications of a central bank digital currency.’

On the collaborative front, England, Canada and Singapore worked together to produce a report on how blockchain technology could improve cross-border payments. The consensus of the group was that: “Cross-border payments and settlements have not kept pace with advances in domestic payments and continue to be based on the correspondent banking model, which has not evolved materially over the decades.” Initiatives by JPMorgan Chase have actually focused on this very theme, with their introduction of their back-office “JPMCoin”.

The report notes that there has been very little in the way of change in the finance sector, but a positive step has been the emergence of several CBDC pilots to explore the intricacies of how the blockchain could improve the status quo. The report also notes that:

Typically, these pilots have been launched on Linux Foundation’s Hyperledger Fabric, R3’s Corda, J.P. Morgan’s Quorum, or a novel iteration of the Ethereum network.

Perhaps, the most promising development comes from the Bank of France with their 2016 Project MADRE initiative. The bank discovered that blockchain technology could deliver a much more efficient solution for what has been called a very time-consuming process within the EU community – The replacement of SEPA Credit Identifiers (SCIs): “The alternative system decentralizes and automates the SCI management and sharing process with ‘smart contracts’ or programmes within Ethereum and other blockchains that enable automatic transactions among participants using predetermined terms.“

The report also mentioned three ongoing projects sponsored by other central banks:

  1. Brazil – Decentralized information exchange platform (Project PIER);
  2. South Africa – CBDC for domestic interbank payments (Project Khokha), and
  3. Sweden – CDBC (e-krona) in a push to become a cashless society.

In all, the report detailed ten different areas where the use of these new technologies might potentially provide benefits:

  1. CDBC and blockchain distributed ledger systems in the payment space;
  2. Cash money supply chain;
  3. Trade finance;
  4. Know-your-customer (KYC) and anti-money-laundering (AML);
  5. Payment system resiliency and contingency;
  6. Information exchange and data sharing;
  7. Customer SEPA Creditor Identifier (SCI) provisioning;
  8. Retail central bank digital currency (CBDC);
  9. Wholesale central bank digital currency (CBDC), and
  10. Interbank securities settlement.

The WEF also revealed that the banks fall into three tiers – those actively experimenting with pilots and research, those that are curious, but are taking a “wait-and-see” approach, and lastly, those that have expressed no interest to date.

As its concluding statement, the WEF predicted that:

Over the next four years, we should expect to see many central banks decide they will use blockchain and distributed ledger technologies to improve their processes and economic welfare. Given the systemic importance of central bank processes, and the relative immaturity of blockchain technology, the banks must carefully consider all known and unknown risks to implementation.

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