Banks operate under the highest levels of security. They are tasked with keeping our transaction records safe and our money secure. Blockchain is a “data structure that is a digital ledger of transactions”. It operates without a central authority (a bank) and lets everyone on the network manipulate the ledger in a secure way. This technology has created a distributed currency and payment system that is “simultaneously secure, open and global.”
With the rise of cryptocurrencies like Bitcoin, Blackcoin and Ethereum, six major banking corporations are now partnering up to create a cryptocurrency of their own. They want to take advantage of the blockchain technology and are calling their digital coin the “utility settlement coin”. This was originally developed back in 2015 by UBS – a financial services firm. Its purpose was to enable the “clearing and settling of transactions worldwide over a blockchain”. Six new banks – Barclays, Credit Suisse, HSBC, MUFG, Canadian Imperial Bank of Commerce and State Street have now joined UBS, as well as several others already on the project. The banks are currently in discussions with central bank regulators in regards to their cryptocoin. According to the Financial Times, they plan to launch a commercial-grade blockchain system by 2018.
Bitcoin and Ethereum have already provided the answer as to how the dematerialiasation of money could be executed by central banks. Currently, central banks face enormous challenges when it comes to issuing notes and coins. For example, it costs money to print notes and to mint coins. Central banks also have to deal with counterfeit notes, robberies and much much more.
Digital currencies, like the “utility settlement coin” will allow banks to identify all transactions, without having to deal with the issues mentioned above. However, it is important to note, that central banks operate very differently to private currencies. For example, private currencies like Bitcoin are global, there are no borders. Central banks have a national currency.
By joining the cryptocurrency market, central banks will have to announce their competition with existing cryptocurrencies. Some critics argue that the central banks will not be able to issue and manage a cryptocurrency successfully, and as a result will fail horribly.
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