Central Banks adopt Blockchain Technology

Written by Ms.Florence Ip and Dr. Kyle Wong

Blockchain technology has been appearing in many industries and is widely discussed in many communities. Moreover, Bitcoin price has been a hot topic among investors globally, as it has recovered rapidly after being blocked by China government and tackled by The Securities and Exchange Commission in the U.S. Occasionally, bad news about crypto-exchanges filed bankruptcy due to cyberattack will be heard, alerting governing bodies and triggering their investigations. The more the governors investigate, the deeper understanding of Blockchain technology they will learn. Now they know how powerful this new technology is, and they start to change their perceptions from negative to positive. The dawn of Blockchain technology comes after 10 years of a hard time.

Bank of England was the first central bank to show interest in Blockchain development for Central Bank Digital Currency (CBDC) in 2014, causing other central banks, such as HKMA, Monetary Authority of Singapore, Bank of Canada and Bank of Sweden, to start planning. In 2019, the Bank of Sweden announced their CBDC issuance will adopt the Blockchain technology by 2023, which will be operating by central bank 24 hours 7 days a week, handling onshore/offshore money transactions, exchanging foreign currencies and indicating personal identity information. Their goal is to transform fiat money into digital, achieving a greater effects in monetary policy and reducing the cost of money printing.

Many people have started engaging more in digital transactions and shopping online during the pandemic, so governors have to look into CBDC more seriously. Christine Lagarde, who was the Chief of IMF, told the banks to be open to Cryptocurrencies in 2018. One of the ECB Executives commented Facebook’s Libra was a wake-up call to them, as ECB worried their 200 million users would adopt Libra broadly. Eventually, Lagarde, who is the new Chief of ECB, has planned to launch CBDC within 2 to 4 years in December 2020. She considered new development can improve the implementation of monetary policy, tackle cyberattacks effectively and regulate the Anti-Money-Laundering as well as Financing of Terrorism activities.

Most recently, the Federal Reserve Chairman, Jerome Powell, allows their banks to provide services for Crypto-assets. Immediately, the U.S. banks, such as Citibank, are building their Crypto Services Centres to offer Crypto Debit Cards and Custodian Management for their customers in America as well as Mexico. Furthermore, J.P. Morgan creates their digital coins for customers for payment. Resultingly, investment in Crypto-assets will be more secure with greater protection from those commercial banks.

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