The Bank of Japan recognizes the need to conduct research and analysis on fintech continuously, particularly considering the possibility that the bank itself may apply fintech technologies to its operations in the future, a BoJ official said recently.
Speaking at the Third FinTech Forum, Shigehiro Kuwabara, Executive Director of the BoJ, shared views of the central bank on blockchain or distributed ledger technology (DLT) and on issues in adopting it in the financial industry.
“"Trust" is much more important in the financial industry than in other fields. In order to make full use of DLT in the financial industry hereafter, how to design it as a trustworthy mechanism will become a big challenge”, Kuwabara said.
He pointed out three key points that must be ensured while developing distributed ledger framework. These include resiliency in emergency responses, the advantages and disadvantages of decentralized system with regard to the application field, and deep understanding of the technology.
While explaining the importance of ensuring "resiliency in emergency responses”, Kuwabara cited TheDAO hack in which the hacker was able to gain control over millions of dollars worth of ether.
“Last year, there was an incident in which an enormous amount of digital currency was drawn from a digital currency-based investment fund by hackers exploiting its system's vulnerability. At this time, in order to recover the money, the operator of the digital currency rewound the payment records, which could normally never occur. There are still different opinions about the propriety of this response, but in any case, we should aware that if such incidents occur frequently, it may spoil the credibility on the technology and the framework, and consequently hinder the development of FinTech”, he said.
Kuwabara also touched upon the joint effort by the European Central Bank and the Bank of Japan to launch a research project which will study the possible use of DLT for market infrastructure.
“A central bank has a responsibility to provide an appropriate social infrastructure with a deep understanding of the advanced technology of the times in order to function properly. DLT in particular is a technology that has a wide range of possibilities to be utilized in various areas”, he said.
