by Joseph Young
Central banks across the world have shown increasing interest in blockchain technology. Leading nations and governments, in particular, have announced their intentions to develop blockchain-based platforms to carry out autonomous operations that could optimize the efficiency of various government activities.
The Bank of Japan and the Reserve Bank of South Africa are the latest monetary authorities to express their optimism towards the blockchain technology and its potential impact on finance.
Since the Mt. Gox fiasco in 2014, the Japanese government has been heavily involved in its cryptocurrency and blockchain markets, assisting local startups toward better regulations and friendly policies. The Japanese government passed a bill to regulate Bitcoin exchanges in May 2016, officially recognizing Bitcoin and digital currencies as money.
The continuous emergence of innovative cryptocurrency-based services and blockchain platforms ultimately served as a motivation for the Japanese government to initiate in various research projects and studies on blockchain to explore its potential in the local financial market.
On August 23, 2016, Bank of Japan governor Haruhiko Kuroda made a series of statements at an event at the Bank’s Fintech Center, describing the importance of blockchain-based services and their impact in today’s financial markets.
“Today, we are observing very rapid innovation in information technology,” said Kuroda.
“Such innovation in information technology has the potential to generate innovation, especially in financial services, and such financial innovation linked to information technology is expressed in the word ‘FinTech’,” he continued.
During his speech on financial technologies and Japan’s rapidly growing fintech industry, Kuroda cited the emergence of blockchain platforms that have begun to serve as the backbone of financial infrastructures of major financial institutions globally. He further emphasized that its ability to eliminate third-party organizations from the settlement of money and assets shouldn’t be overlooked by banks.
“Moreover, ‘blockchain’ and ‘distributed ledger technologies,’ the flagship technologies in FinTech, challenge the conventional concepts of ledgers kept by a trusted third party in a centralized manner. Given that the development of financial services has been supported by ledgers as the basic infrastructure for information, the dramatic changes in how ledgers are kept may have the potential of significantly changing the structure of financial services,” he stated.
The Bank of Japan has recently shifted its gear towards information security and fintech-based transactions from conventional banking systems, which led the organization to set up a fintech center back in April and hold this event to discuss the importance of blockchain technology.
Considering the Japanese government and the central bank’s optimism towards the blockchain technology, it is highly likely that they will lead various projects to help banks integrate blockchain platforms in their existing systems.
The central bank of South Africa is another major financial institution that have looked into the applicability of the blockchain technology into the industry of finance. The Reserve Bank of South Africa’s governor, Lesteja Kganyago, publicly expressed the organization’s “openness” towards blockchain technologies and their intent to help startups come up with innovative solutions using the technology.
“As a central bank, we are open to innovations despite the different opinions of regulators on matters such as cryptocurrencies,” said Kganyago in a speech at a Cybersecurity Conference in Johannesburg. “We are willing to consider the merits and risks of blockchain technology and other distributed ledgers,” he added.
In contempt of the obvious financial and economical advantages of integrating the blockchain technology, the central bank is particularly concerned with the technological and security-related issues blockchain platforms may present. Both the government and central bank of South Africa agree that the blockchain technology and cryptocurrencies need further guidance and assessment from the government before it can be offered to organizations in the public sector.
Kganyago hopes to provide favourable regulations for both startups and the government so that the users of cryptocurrencies and blockchain platforms will not have to deal with fraud or other criminal activities.
“While there are benefits associated with this new technology, it is difficult to assess those benefits against the risks of something so novel, innovative and technologically sophisticated,” said the National Treasury. “Users of virtual currencies can therefore become susceptible to fraudulent or any other criminal behaviour as they may be less circumspect than usual when faced with the promise of high return investment opportunities,” it added.
The increasing interest from central banks around the world suggest that governments will most likely collaborate with its partnering financial institutions to guide the development of blockchain and establish friendly regulations for emerging startups in the future. Japan and South Africa’s recent remarks regarding the blockchain technology and fintech paves a positive future for the financial industry.
It looks likely that bitcoin will not only face competition from corporate cryptocurrencies in the near future but also national ones as well. Although seen as a threat, new entrants could embolden bitcoin’s rise even further if it manages to fend off competition from central banks and corporations, proving itself as a more reliable and valuable system.