The International Monetary Fund (IMF) has published a new article that focuses on bitcoin blockchain and its potential to transform the financial sector.
Penned by Andreas Adriano, a senior communications officer in the IMF’s communications department, and Hunter Monroe, a senior economist in the IMF’s monetary and capital markets department, the article, titled "The Internet of Trust” starts off by highlighting the irony the technology that was created to avoid banks, might actually end up helping them.
“[C]alled distributed ledgers, or blockchain—could allow what many see as radical rewiring of the financial sector”, it said. “Essentially, this is a technology for verifying and recording transactions on a peer-to-peer basis without a central authority. It upends a very basic tenet of payment systems: having one central, independent, and trusted bookkeeper that stores and validates all transactions—a role often played by central banks”.
The authors believe that the blockchain technology can be used to bring about a fundamental change in the financial sector. They said that the technology could reduce the settlement time for securities transactions as well as lower the amount of money needed to be set aside to cover credit and settlement risks.
Speaking of the potential of blockchain or distributed ledger technologies for central banks, the article noted that the ECB’s director general of market infrastructure and payments, Marc Bayle does not rule out the possibility that the technology might evolve to become useful in central banks, despite their current limitations and the conceptual tension between distributed and central ledgers. It added that although the use of blockchain to replace the ECB’s main settlement systems is not really being envisioned currently, it is being considered in “certain niches” to foster secondary markets for more exotic securities.
The authors concluded saying:
“It is probably too early to say whether blockchain is “the next Internet” or just an incremental evolution. Silicon Valley is paved with overhyped ideas that later proved unviable and with revolutionary companies that disappeared in a few years, but still in some cases had some impact…It’s not impossible to think that bitcoin or other blockchain technology could implode because of a still unknown design flaw or the work of a, well, disruptive hacker. The blockchain game is only beginning.”
