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How blockchain could change the way we pay

Two news items in the past week suggest that blockchain technology is set to change the way we pay – both as consumers and as big businesses in complex supply chains – from central bank settlements to invoice-financing.

Digital currency linked to sterling?

The Telegraph reported that the Bank of England is investigating the possibility of a digital currency linked to sterling, which, the newspaper wrote, could lead to “a revolutionary shake up of high street banking”. It said the results of the investigation are expected in the next two years.

The Telegraph's chief reporter Robert Mendick wrote: “A Bank of England-issued digital currency would potentially allow British citizens to keep their money – in digital form – with the central bank itself, dispensing with the need for a retail bank. Big-ticket transactions, such as buying a house, could happen in nanoseconds.”

Blockchain for central bank settlements

Last year, the UK central bank tested payments using blockchain (or distributed ledger) technology, successfully carrying out payments between two central banks. The bank's governor, Mark Carney, told a Treasury Select Committee at the end of last year: “The underlying technology is actually of a fair bit of interest. We are working with it at the Bank of England.” He also said that the most interesting application of blockchain technology would be for settlements between central banks.

Invoice-backed financing on blockchain

Another area where distributed ledger technology could have an impact is in improving the standardisation of electronic invoicing and, more importantly, for invoice-backed financing. Blockchain could help to automate and streamline invoice-backed financing, while making it more secure, reliable and fraud-proof. Some of the problems that occur in invoice-backed financing include:

  • verifying the legitimacy of an invoice and that it relates to an underlying transaction;
  • authenticating the identity of the invoice's issuer; and
  • invoices being used for financing more than once.

In this blog, How Blockchain Will Revolutionize Invoice-Backed Financing, Diego Caicedo, CEO of Portal Finance, writes: “Blockchain could well usher in the next technological revolution in invoice financing.”

Caicedo adds that the current blockchain technology systems aren't able to solve these issues but there is huge potential for future versions of blockchain-based systems: “Distributed ledgers are version 2.0 of the current systems, and can work around concepts such as identity verification, public/private transaction distinction, and automated execution of contracts which are more akin to what regulated financial institutions require to implement these systems at scale.”

CTMfile take: It will be an interesting year for systems based on distributed ledger technology and there could be some interesting developments in the cases outlined above: digital currencies issued by central banks and settlements of payments between central banks; systems that facilitate invoice-backed finance and smart contracts.

This item appears in the following sections:
Payments - Making
Making International Payments
Trade & FSC Management
Trade Finance

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