Central Banks Officials Says Blockchain can Improve the Financial System
At the Massachusetts Institute of Technology (MIT) Bitcoin expo 2020, the three monetary and cryptocurrency experts had a talk about Digital currency issued by central banks prospects and challenges on 7 March.
According to panellists, the existing global monetary system can be improved by distributed ledger technology (DLT) Inspite they revealed that the significant challenge continues privacy, interoperability, and scalability of blockchains.
IMF official Warned Central Banks not to Adopt DLT
The central bank is warned by Sonja Davidovic, an economist with the International Monetary Fund (IMF), not to execute the blockchain system without scrutinizing the technology.
Stated by Sonja Davidovic: “What we’ve seen a lot is that there’s hype out there and people are quickly jumping to choosing that technology just because it’s popular.”
“That certainly happened with blockchain. The result of that is that we’ve seen central banks that are directly engaging with it without going through the proper process of testing the technology in a proof of concept, selecting vendors through an open bidding process, and having a request for proposals.”
As per Davidovic, even though the central bank is adapted over the distributed system it has not developed strong privacy and interoperability modules. The official IMF states that for implementation of technology, the central bank faces maximum risk factor, as it provides development to third party companies.
“It’s about the weakest link. You can have a secure system, but if the people who’re operating the system click on a phishing email or allow a security breach, your most robust system is not going to help with security.”
Assumed, DLT Backed Multi-Trillion Transaction Volumes
Robleh Ali, a research scientist at the MIT Digital Currency Initiative and a former Bank of England official, estimates that central bank digital currencies will hold its presence on different “hybrid” forms.
“You’ll likely end up with a hybrid in the end. I don’t think every central bank would choose the same system. How they interact with each other will be key, so you can sort them into a single system.”
Stated by Bob Bench, the director of applied fintech research for the Federal Reserve Bank of Boston, that needs of the central bank cannot be sufficiently managed by cryptocurrencies held like bitcoin.
“BTC is very interesting because it’s mostly just transactional values. But if you’re trying to build a retail central bank currency – like China, for example, there’s 40 trillion in volume last year generated through WeChat alone – you need something that over and over and over again, can move value and do it quickly without breaking.”
The federal reserve official advised central banks to hold the risks of “putting their full faith and trust of their government’s currency” into DLT rather than of granting that DLT “might work”.
According to the bench, From June 2019, The Alipay and WeChat have gathered the world’s digital central bank reserves and people’s Bank of China.
