Sixty studies conducted by central banks around the world have the use of Blockchain to issue central bank digital currencies as the most common implementation
Andrea Leal, an expert in cryptocurrencies and blockchain, explains some implementations of Blockchain by central banks around the world, according to a report published by the World Economic Forum (WEF) on April 3rd. This document states that 60 studies on cases of Blockchain use have been conducted by more than twelve central banks worldwide.
The regulatory bodies of Sweden, France, Brazil, South Africa, and Uruguay, among other countries, have conducted pilot tests and even implemented blockchain prototypes in financial applications. At least 10 central banks are already conducting projects on Blockchain technology, among which the most prominent are on the issuing of central bank digital currencies (CBDC).
The central banks of Sweden, Uruguay, The Bahamas, Cambodia, and the Eastern Caribbean islands, among other countries, have focused their studies on the use of Blockchain for CBCD in retail markets. These entities consider that Distributed Ledger Technology (DLT) technology can help operate and liquidate national crypto assets without intermediaries, which would be available to national consumers.
Regulators consider that Blockchain could also be used in CBDC addressed to wholesale markets, that is, interbank systems. In this way, digital currencies are available only to commercial banks and clearinghouses, which would have access to a Blockchain-based platform in countries such as South Africa, Canada, Japan, Thailand, Saudi Arabia, Singapore and Cambodia that study this case of use.
The regulators in Japan, Singapore, England, and Canada are studying the possibility of developing a blockchain application for delivery against payment (DAP) systems, which allows commercial banks and consumers to liquidate securities for cash. Similarly, Blockchain could also be implemented in payment systems of primary liquidation or security copy, which allows covering technical failures and losses during natural disasters or cyber attacks in national banks, in Brazil or the Caribbean islands.
An already commercially active case of Blockchain use is bond auction or administration, as the World Bank launched a system in 2018 that allows issuing, administering and auctioning the entity’s bonds. On the other hand, the Central Bank of Hong Kong is studying the possibility of sharing and tracking information about its customers’ payments and identity through a blockchain to enforce anti-money-laundering (AML) and know-your-customer (KYC) measures.
The report also assures that the Central Bank of Brazil is interested in developing decentralized databases with Blockchain to exchange governmental information nationwide. Similarly, Blockchain could be used in Hong Kong to streamline the database of the national commercial financing system and in the Caribbean islands to issue, track and manage the delivery of fiat currency cash throughout the region.
France at the Head of Blockchain
It is stated that one of the most outstanding cases of use is the implementation of Blockchain in the European Single Euro Payments Area (SEPA) system, which has been conducted by the Central Bank of France since 2016 and is currently commercially active.
SEPA is a system that allows customers from the 22 European Union states to make settlements from any European bank account without using cash. The whole SEPA is using smart contracts to identify creditors of this system and approve transactions, being the first Blockchain implementation conducted by a central bank worldwide.
Cambodia is another country that may soon make history with Blockchain, as its central bank has informed the WEF that it will launch a cryptocurrency that can be acquired by individuals and commercial banks.
R3 Corda, Hyperledger platform, Morgan’s Quorum and some private versions of Ethereum are the most popular blockchains among central banks worldwide. In other words, regulatory entities continue to preferring private and centralized blockchains.
It is also highlighted that emerging countries in Africa and South America are the ones that could benefit most from implementing Blockchain in their systems, which has caught the attention of central banks, especially in Brazil, Uruguay, The Bahamas, South Africa, and Cambodia.
By Willmen Blanco