Blockchain technology could reduce the role of intermediaries such as banks and settlement houses, the Bank for International Settlements – or “the central bankers’ central bank” – said in a report on Monday.
Blockchain technology – or distributed ledger technology, as many financiers prefer to call it – is what underpins bitcoin , a controversial web-based “cryptocurrency”.
It is a massive ledger of every bitcoin transaction made that is verified and shared by a global network of computers.
However, the data that can be secured by the blockchain is not restricted to bitcoin transactions. Any two parties could use it to exchange other information, including stock deals, legal contracts and property records, within minutes and with no need for a central authority to verify it.
Basel-based BIS’s Committee on Payments and Market Infrastructure (CPMI), made up of central bankers from across the world, said it could challenge banks’ role – but if the technology became widespread it was unclear who would then provide credit and savings facilities.
Banks reckon the technology could save them money by making their operations faster, more efficient and more transparent and are investing large sums of money in the initiative.
“Digital currencies and distributed ledgers are innovations that could have an impact on many areas, not only on payment systems and services,” said Benoit Coeure, the committee’s chair and a member of the European Central Bank’s Executive Board.
“Even if today’s schemes do not endure in their present form, it is likely that other products, services and business models based on the same underlying technology will continue to emerge and develop. This might lead to changes in the way that FMIs (financial market infrastructures) and other market participants operate.”
The report said blockchain technology could present a “hypothetical challenge” to central banks too, because it reduced the need for a central body.
The CPMI also said the nature of the technology meant it did not fit easily into existing regulatory frameworks, and that the borderless nature of digital currencies posed a particular challenge to regulators.
Last week the European Union said it would increase controls on bitcoin in a bid to curb terrorism funding, following attacks in Paris that killed 130 people.