THE KEY IS IN BLOCKCHAIN TECHNOLOGY
Despite concerns over cryptocurrencies, banks and financial institutions see value in the underlying technology. Central banks are actively experimenting with central bank digital currencies (CBDC) to capitalise on the potential benefits of blockchain technology and distributed ledgers.
Recently, China is pushing its e-CNY, a form of CBDC, to the broader population after piloting through lotteries to distribute red envelopes in a few cities. E-CNY will replace cash and coins in circulation and does not bear interest.
Apart from payment services, banks are implementing blockchain technology in a variety of business segments as well, including real-time cross-border transactions, trade finance, know-your-customer due diligence and fraud prevention.
Consider trade finance: One of the greatest hazards to trade partners is the potential of fraud since the same cargo might be mortgaged many times due to inadequate oversight over the flow of goods and documentation.
One example is ZenRock, a Singapore-based oil dealer who was accused of engaging in dishonest operations in early 2020 by utilising the same oil cargo to get loans from several lenders.
Banks frequently can only write it off as a business cost. DBS, Standard Chartered and HSBC, have been exploring blockchain solutions to improve trade financing. Payments between importers and exporters could be made in tokenised form using blockchain technology, based on the delivery or receipt of products.
Importers and exporters might use smart contracts to set up procedures securing automated payments and avoid the risk of lost, delayed, or repeatedly mortgaged cargoes.
Blockchain, the underlying technology of cryptocurrency, has the potential to increase the efficiency and transparency of the financial system.
And there may come a day when digital currencies become a more widely accepted means of payment such that the ordinary crypto investor might consider buying for groceries with cryptocurrency.