Central Banks in the age of Blockchain

Summary

Many global central banks are independently exploring distributed ledger technology for use within their financial systems. The Forum’s shared platform will streamline and enhance these efforts by coordinating research-sharing and collaboration among central banks to develop a knowledge base of key insights that will inform policies and deployments.  

The Challenge

Central banks play one of the most critical roles in the global economy. Their decisions about implementing distributed ledger and digital currency technologies in the future will have far-reaching consequences on financial and monetary systems, domestic economies, and the welfare of citizens. Moreover, distributed ledger technology (DLT) may hold potential to enhance efficiency, financial inclusion, resiliency, and security in financial systems. At the same time, any imprudent DLT implementation not based on thorough research poses significant risks to financial stability on the domestic or international scale.

Central banks across regions have been formally or informally experimenting with distributed ledger technologies. However, they are often researching independently without efficient ways to share insights, coordinate, or scale work.Further, they are often reluctant to publicly share their activities because of the impact such signalling may have on markets. The result is that research is frequently duplicated, and many central banks who have not been dedicating resources to research the topic are falling behind on exploring high-potential use cases.

Central banks also have difficulty to closely follow rapidly evolving DLT and digital currency technology developments in order to fully understand their possibilities and risks. They must at once understand and evaluate technology capabilities available now and in the future, determine their value and applicability to financial systems and central bank operations, and critically study any and all risks and challenges posed by implementing DLT.

Finally, experimentation of DLT in the financial sector to-date has primarily been driven by large and well-resourced financial institutions seeking to replace or retro-fit privately operated financial infrastructure for the benefit of their clients and shareholders. This focus may overlook significant opportunities to improve publicly operated financial infrastructure or to deploy new, collaborative public-private efforts of DLT-based financial infrastructure.

The Opportunity

The Forum is convening a community of technologists from central banks from all countries around the world to coordinate and scale research efforts. With Forum staff, they will capture lessons from current isolated pilot projects, following appropriate levels of privacy and anonymization to avoid harmful market signalling. The Forum and its community will synthesize these insights into trusted governance frameworks that can help financial institutions around the world experiment with and potentially adopt blockchain for proven use cases in a scaled, responsible, inclusive, and effective manner.

This community will also co-design frameworks for new DLT use cases that may address challenges such as custody, security, and interoperability. Importantly, it will co-design frameworks for multi-lateral research pilots for high-value uses cases. The Forum will then partner with forward-leaning jurisdictions and cross-sector stakeholders to pilot these frameworks to test key assumptions and implementation risks and challenges, helping to scale R&D globally and assure that any potential implementation is backed by deep research efforts from the international community.

Relevant institutions, start-ups, and experts have the opportunity to engage in this process and shape the exploration and research of DLT to global financial and monetary systems. Importantly, they can ensure that DLT research, development, and potential implementation does not result in increased stratification and systemic risk, but instead lays the groundwork for a truly stable and inclusive global system. 

Impact


  • Drives insight-sharing and strong, collective demand signal from central banks for technology solutions that best meet their unique needs and interests.

  • Creates opportunities for significant research and knowledge-building to serve common and unique research goals across all countries, and to reduce the risks of implementation.

  • Scales R&D efforts while reducing costs and inefficiencies. Uncovers opportunities for collaboration for the benefit of all participants.

  • Formalizes and encourages commitment to multi-party cooperation and insight-sharing.

  • Connects central bank community with financial institutions, academia, and technology startups to enrich and inform DLT knowledge and R&D.

  • Ultimately strengthens central banks’ knowledge of DLT and its opportunities and risks, as well as their access to the best-suited technology solutions.