Blockchains are still synonymous with the wild world of cryptocurrencies, but on Monday, 30 banks and SWIFT – the world’s most important cross-border payment service – made them an utterly mainstream part of the global financial system.
SWIFT – aka the Society for Worldwide Interbank Financial Telecommunication – provides a messaging service that financial institutions use to move money around the world. The service is widely used but is slow because, as explained by ANZ Bank, SWIFT “doesn’t actually move the money.”
“This means the instruction to pay and the movement of funds happen separately, often requiring a complex network of accounts and correspondent banks to enable a payment to be processed. This disconnect can slow payments down and lead to a lack of visibility for both sender and recipient.”
It can also mean cross-border payments take a couple of days to complete.
SWIFT’s problems are well known and financial services types see the service as sound – but also sand in the gears of global trade.
Blockchain enthusiasts who saw cryptocurrency transactions rapidly rippling across distributed ledgers, therefore wondered if their preferred technology could improve the speed of cross-border cash transfers. Many startups, some with support from sensible central banks, have explored this idea, usually by proposing “stablecoins” – digital currencies pegged to the value of a fiat currency – which would be exchanged on a blockchain to provide faster settlements than SWIFT can achieve.
China has similar ideas: One application for its Digital Yuan is enabling rapid cross-border transactions in the Middle Kingdom’s currency, and not the US Dollar that is often used to move money around the world. If China could use its digital currency to control a slice of global trade, it could weaken Western institutions like SWIFT.
Almost everyone contemplating using a blockchain to move money around the world imagines either supplanting SWIFT, or stealing a lot of its business.
It’s therefore unsurprising that on Monday SWIFT announced its intention to “add a blockchain-based shared ledger to its technology infrastructure, a pivotal step for global finance that promises to make instant, always-on cross-border transactions possible at unprecedented scale.”
SWIFT will also build tools to integrate its existing payment systems, and its new blockchain.
“It is envisaged that the ledger – a secure, real-time log of transactions between financial institutions – will record, sequence and validate transactions and enforce rules through smart contracts,” SWIFT’s announcement explains. “It will be built for interoperability, both with existing and emerging networks, while maintaining the trust, resilience and compliance synonymous with Swift and critical to the secure functioning of global finance.”
34 financial institutions from 16 countries have signed up to design the ledger, with help from Ethereum outfit Consensys.
SWIFT didn’t predict when this ledger will go live, which is probably sensible as projects of this magnitude can easily go pear-shaped and previous attempts at using blockchains for high-volume mission critical systems have gone badly.
But for now, an entity that has for decades played an important role in the global economy has decided it needs to rebuild itself on blockchain.
In some ways that’s unremarkable because very few people need to care about the technology plumbing their banks employ. SWIFT adopting Blockchain, however, will likely bring tokenized assets much closer to the mainstream.
Source: Blockchain just became a mainstream part of global finance • The Register
Robin Edgar
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