Tag Archives: Settlement system

“Wer hat Angst vor Blockchain? (Who’s Afraid of the Blockchain?),” NZZ, 2016

NZZ, November 29, 2016. HTML, PDF. Longer version published on Ökonomenstimme, December 14, 2016. HTML.

Central banks are increasingly interested in employing blockchain technologies, and they should be.

  • The blockchain threatens the intermediation business.
  • Central banks encounter the blockchain in the form of new krypto currencies, and as the technology underlying new clearing and settlement systems.
  • Krypto currencies bear the risk of “dollarization,” but in the major currency areas this risk is still small.
  • New clearing and settlement systems benefit from central bank participation. But central banks benefit as well; those rejecting the new technology risk undermining the attractiveness of the home currency.

“Central Banking and Bitcoin: Not yet a Threat,” VoxEU, 2016

VoxEU, October 19, 2016. HTML.

  • Central banks are increasingly interested in employing blockchain technologies.
  • The blockchain threatens the intermediation business.
  • Central banks encounter the blockchain in the form of new krypto currencies, and as the technology underlying new clearing and settlement systems.
  • Krypto currencies bear the risk of “dollarization,” but in the major currency areas this risk is still small.
  • New clearing and settlement systems benefit from central bank participation. But central banks benefit as well; those rejecting the new technology risk undermining the attractiveness of the home currency.
  • See the original blogpost.

Banking on the Blockchain

In the NZZ, Axel Lehmann offers his views on the prospects of blockchain technologies in banking. Lehmann is Group Chief Operating Officer of UBS Group AG.

New possibilities:

  • Higher efficiency; lower cost; more robustness and simpler processes; real-time clearing;
  • no need for intermediaries; information exchange without risk of interference
  • automated “smart contracts;” automated wealth management;
  • more control over transactions; better data protection;
  • improved possibilities for macro prudential monitoring.

Challenges:

  • Speed; scalability; security;
  • privacy;
  • smart contracts require new contract law;
  • interface between traditional payments system and blockchain payment system.

Lehmann favors common standards and he points out that this is what is happening (R3-consortium with UBS, Hyperledger project with Linux foundation).

Related, Martin Arnold reported in the FT in late August that UBS, Deutsche Bank, Santander, BNY Mellon as well as the broker ICAP pursue the project of a “utility settlement coin.” Here is my reading of what this is:

  • The aim seems to be to have central banks on board; so USCs might be a form of reserves (base money). The difference to traditional reserves would be that USCs facilitate transactions using distributed ledgers rather than traditional clearing and settlement mechanisms. (This leads to the question of the appropriate interface between the two systems posed by Lehmann.)

But what’s in for central banks? Would this be a test before the whole clearing and settlement system is revamped, based on new blockchain technology? Don’t central banks fear that transactions on distributed ledgers might foster anonymity?