Central banks find it hard to ignore blockchain technology, which has great potential for development

Central banks are increasingly showing interest in blockchain technology, which has the potential to reduce costs and increase operational efficiency.

The interest of major banks in cryptocurrency and its underlying technology has been increasing. The rise in the price of Bitcoin today also represents the increase in people's interest in digital currency. At the same time, major banks and financial institutions have published at least 100 studies and white papers on it. Although today's global economy is built on a centrally controlled model, more and more central banks are beginning to pay attention to integrating blockchain systems into their networks.

Most central banks have not yet realized or accepted Bitcoin, mainly due to its global and decentralized nature. However, distributed ledgers and their potential to simplify data recording, tracking and accounting processes have made it difficult to ignore this technology. This has led to the People's Bank of China and the Bank of England planning to issue their own national currencies in digital form on the blockchain.

What makes blockchain technology so exciting?

First, the inherent immutability and transparency of blockchain make it easy for central banks to track currency in circulation.

Secondly, blockchain-based legal digital currencies will reduce the number of banknotes and banknotes in circulation. In turn, this will reduce the operational costs of printing banknotes and issuing currency notes.

At the same time, the widespread use of blockchain-based legal tender can also help Bank of China combat money laundering and eliminate the possibility of counterfeiting.

In addition, blockchain technology can greatly reduce transfer fees and cross-border payment time, and can also complete instant transactions between different branches of banks within or outside the country.

According to one of the media reports, Lael Brainard, the Fed’s director of new technologies, said:

“We are watching distributed ledger and blockchain technology very closely and we think it could represent a huge development in payments, clearing and settlements many years from now,” she continued. “Using this technology to innovate could bring great benefits to society.”

By the way, the Fed isn’t the only one looking at this technology. The R3 blockchain consortium, a group of banks and financial institutions, is working together to create blockchain applications. Similar consortiums exist in Russia and China, too, and are backed by their respective central banks.

In the near future, traditional banking operating systems will gradually disappear, and blockchain-based operating systems will become more common.