IIF Authors

Status: Will be live at 04/21/2017 00:00

Central Banks, Cryptocurrency, and the Future of Money

Friday, April 21, 2017

The next wave of financial technologies is accelerating change in how value is stored and transferred in the economy. Blockchain crypto currencies, new authentication technologies, systems automation with APIs, and smart internet connected devices are all reshaping the financial ecosystem and the role of money. Central banks and the public sector at large are studying these developments and assessing new technologies for their own use in the next generation of central bank money and government services.'

A focus on cryptocurrency and blockchain technology by central banks has been notable over the past several years in Canada, Great Britain, France, Sweden, the Netherlands, India, Russia, Singapore, Japan and China, with more joining the list every month. Central banks could employ blockchain cryptocurrency technology to increase transparency, further reduce reliance on cash and its handling costs, and speed settlement systems thereby reducing the capital tied up in collateral throughout the economy; however, the potential disruption to current roles and structures in the market could be significant and difficult to anticipate.'

At the same time, the financial services industry continues investing resources and expectations in new systems based on blockchain and distributed ledger technologies for the next generation of financial infrastructure. Consortiums Hyperledger and R3, bank labs, and blockchain technology firms are building systems for market infrastructure with leading examples at the DTCC in the U.S. and ASX in Australia. The Utility Settlement Coin is another project which points to the potential for real change and should be more widely discussed and analyzed. This join effort by UBS, BNY Mellon, Deutsche Bank, Santander, and ICAP is building a new form of digital cash, setting an industry standard for clearing and settling trades over a distributed ledger. Depending on how it develops globally, coins like this could have implications for currencies in the settlement chain.
Blockchain cryptocurrency and settlement coin technologies present exciting opportunities to innovate, transform system efficiency, and improve transparency. They are also introducing new challenges as regulatory frameworks and supervisory mechanisms are just beginning to understand this new technology. Bringing in new technology skills and expertise to regulatory and supervisory bodies will be an important element to the evolution ahead.

On the side of the World Bank/IMF Spring Meetings, the IIF and Citi held a roundtable for central bank governors and public sector leaders to discuss digital money, the positive impacts it can bring, and opportunities for blockchain technology to accelerate and deepen the move to digital currency. The IIF convenes events and meetings on blockchain technology several times each year to help the financial services industry, blockchain technology developers, and the public sector identify key implications for moving to this new technology. We aim to improve understanding so that we can help the financial services industry gain the full benefits of this new technology.'