From new central digital currencies, payment systems, to recording management, Central Banks are actively testing blockchain technology for the myriad range of different use cases, having some sort of audit trail for particular functions and much more.
Actually, there’s a long list of the things that central banks are looking at blockchain technology to do, as long as blockchain isn’t just hype. There are several advantages, potentially, to central banks by including blockchain.
Perhaps, the most important is the resilience of the technology. The fact that bitcoin has been operating for quite a long time and hasn’t suffered a significant downtime is quite obliging.
You May Also Read: Can Bitcoin Replace The Role of Central Banks?
Top 10 Use-Cases of Blockchain for Central Banks
Central banks, across the world, have been exploring their iteration of CBDC as well as blockchain technologies. For example, Brazil is piloting a decentralized data exchange platform (Project PIER), South Africa is looking into Project Khokha by CBDC for domestic interbank payments, whereas Sweden is anticipating to use a CDBC‘s e-krona in a push to be a cashless society.
While several central banks are finding ways to use blockchain technology, rather than a CBDC, the WEF report highlights nine other potential use-cases that central banks could make use of –
- Cash supply chain
- Trade finance
- KYC (Know-Your-Customer) and AML (Anti-Money-Laundering)
- Payment system contingency and resiliency
- Data sharing and information exchange
- Customer SEPA Creditor Identifier (SCI) provisioning
- Retail CBDC (Central Bank Digital Currency)
- Wholesale CBDC
- Interbank securities settlement
Each of these ten blockchain use-cases for central banks has already seen some experimentation in the private sector. That’s why, as WEF report states, many banks are still sidelined but an alternative to developments in the space.
The report articulates 3 tiers in the central banking space, whereby the banks of England and France have looked into the matter and launched pilots, which is just another demographic that is keen, but content to “largely [monitor] activity by peer institutions and within the private sector,” and a 3rd group that sees no interest in the technology at large.
You May Also Read: Why Centralization Is Inevitable In Cryptocurrency Space?
Are You A Central Bank?
If you are a central bank offering critical payment system, thinking about moving away from physical currency to a digital money-based system, then having a technology that is resilient and will have zero downtime is something that’s actually really important.
This way, blockchain can be quite resilient. Also, it can be a way of creating greater transparency into central banking with more credibility owing to the rules a blockchain-based system enforces.
However, there are several challenges involved with this. There’s a concern about the lack of privacy. Bitcoin is popular for offering high levels of privacy, but blockchain can leak the data. It’s easy to figure out who’s doing what on a blockchain-based system since it’s a public record.
So, the lack of privacy could be the concern and hesitation for central banks considering blockchain technology.
Here are a Few Articles for You to Read Next: