The International banking community is banking on blockchain technology to increase the efficiency of their operations by providing a cheaper and faster fund transfer method. In addition to faster transactions, blockchain technology is also expected to reduce the regulatory and compliances costs for the banks by a great deal. Over 40 leading banks from across the world have created a consortium along with R3CEV, a fintech solutions provider for research, development and implementation of blockchain based fiat settlement system.
While banks are doing their best to catch up with the increasing popularity of bitcoin, we have few central banks having second thoughts about digital currencies. The Bank of England is one such Central Bank that is a bit skeptical about the development and use of blockchain technology. The Bank of England has expressed concerns about the potential misuse of blockchain technology and the impact it might have on digital legal tenders (national currency) if created by Central Banks.
HM Treasury of the United Kingdom has been supportive of bitcoin and blockchain technology. The central bank, Bank of England has been following the developments in the sector as well. With banks creating their own versions of private blockchains may change the balance by offering an unfair advantage to few banks over others. Banks left out of the privately distributed banking ledger system due to competitive reasons may end up suffering from huge losses. They will end up losing customers. Similarly, pockets of blockchain based banking network created by institutions with self-serving interest may attempt to avoid the Central Bank’s oversight by restricting access to their balance sheets.
Currently, banks are developing the blockchain technology to handle fiat currency transactions. Once digital versions of these currencies are created by respective governments, banks will be able to exert more control over the economy, disrupting the current system and depriving many of access to financial services.
Bitcoin is democratized and works on a public blockchain, which won’t be the case with banks and it may be counterproductive to bitcoin’s effort to make financial services available to everyone.
At the moment, it looks like the Bank of England is in no hurry to jump onto the blockchain bandwagon without proper clarity.