The Bank of England (BoE) still believes the Blockchain has the potential to save banks tens of billions of dollars in operating costs.
The Bank of England (BoE), one of the first central banks to form a research group dedicated to the development of Blockchain technology, still believes the Blockchain has the potential to save banks tens of billions of dollars in operating costs.
Banks and other service providers within the finance industry continue to rely on outdated and inefficient infrastructures to handle complex financial operations.
The processing of payments, clearing and settlement require a high level of manual labor and approval, often resulting in significant delays, lost transactions and mishandled settlements of assets and contracts.
Transparent and secure technology
Researchers at BoE perceive the Blockchain as an immutable, transparent and secure technology which banks and financial institutions can utilize to handle operations in an autonomous ecosystem.
Since transactions and the settlement of assets are recorded directly to a distributed ledger, Blockchain technology enables banks to establish an unalterable database that can be updated in real-time for maximum transparency.
At the inaugural international fintech conference held in London on April 13, BoE governor Mark Carney stated:
“Securities settlement seems particularly ripe for innovation. A typical settlement chain involves many intermediaries, making it comparatively slow and keeping operational risks high. The industry has begun to work together to determine how distributed ledger technologies could be used to solve these issues at scale.”
Elimination of intermediaries
Although banks are also intermediaries, they depend on a wide range of third party service providers to handle and process their operations. The settlement and clearance of a payment or an asset can potentially involve multiple intermediaries if it is processed as a cross-bank and cross-border transaction.
BoE along with other banks including the Reserve Bank of Australia and Bank of Korea envision a Blockchain-based platform wherein many banks can participate as members of the network and settle transactions and assets in a transparent ecosystem. By relying on a shared ledger, banks can easily eliminate any additional intermediaries that are contracted to process complex settlements.
During his talk, Carney also mentioned a research paper of Santander Bank on the implication of Blockchain technology to global banking. The paper, which outlined the reduction of operating costs as a result of the implementation of the Blockchain, noted that Blockchain technology could potentially save banks operating costs in the range of $15 to $20 bln a year.
Santander Bank and its researchers derived the $15 to $20 bln range from actual costs dealt with by banks that normally stem from cross-border payments, securities trading and regulatory compliance.
What BoE needs to do
Currently, BoE and its researchers are actively looking into the development of Blockchain technology and are involved in various Blockchain consortia and projects including Hyperledger.
Apart from collaborative projects, BoE recently showcased a proof of concept Blockchain platform with PwC, with the intent of demonstrating the potential and applicability of Blockchain technology in the finance industry.
To bring Blockchain development forward, BoE and the rest of the UK government’s financial regulators must provide necessary regulatory frameworks for banks and Blockchain developers. If regulatory hurdles are passed, the Blockchain industry will have a higher probability of success.
Source: BTC Upload