German Central Bank Explores Blockchain Technology

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Blockchain

German Central Bank is testing blockchain technology.

The blockchain is seen as the main technological innovation of Bitcoin, since it stands as proof of all the transactions on the network. A block is the ‘current’ part of a blockchain which records some or all of the recent transactions, and once completed goes into the blockchain as permanent database.

Looks like the German Central Bank is off to some innovation as they announced earlier their research, wanting to explore Blockchain technology. This news is truly a refreshing one since rarely this happens that blockchain’s technology being explored by government for future implementation.

The German Central Bank, Deutsche Bundesbank, and the operator of the country’s stock exchange, Deutsche Börse, recently announced a research blockchain. “The Deutsche Bundesbank hopes that this prototype will contribute to a better practical understanding of blockchain technology in order to assess its potential,” said Carl-Ludwig Thiele, Member of the Board of the Deutsche Bundesbank.

The technology is based on a blockchain from the Hyperledger project, according to the Bundesbank’s announcement. The Central Bank and the Börse will spend the next few months developing the prototype further, which is described as a “conceptual study” and “far from being market-ready.”

The German institutions intend to test a range of applications, including centrally-issued digital coins. Other testing mentioned by the partners include Blockchain based payments and securities transfers, securities settlements against both instant and delayed payments, pure transfer of either digital coins or digital securities, coupon payments on securities, and the redemption of maturing securities.

In addition, the tests are intended to ensure that the new blockchain-based system will be able to carry out all of these functions while observing existing regulatory requirements, simplifying the processes of reconciliation and regulatory reporting, and maintaining confidentiality and access rights.

“With the blockchain prototype, the Deutsche Bundesbank and Deutsche Börse want to work together to find out whether this technology can be used for financial transactions, and if so, how this can be achieved.”

– Carl-Ludwig Thiele, Member of the Board of the Deutsche Bundesbank

The Deutsche Bundesbank was established as the central bank of the Federal Republic of Germany in 1957. Up to the end of 1998, the bank was responsible for ensuring price stability in Germany. With the launch of European monetary union and the introduction of the euro at the beginning of 1999, this task was transferred to the Eurosystem. Due to its strength and former size, the Bundesbank is the most influential member of the European System of Central Banks (ESCB).

The bank led held its sixth annual Central Banking workshop last week, a one day event titled “Blockchain technology – opportunities and challenges.” In the Keynote address, Member of the Board Carl-Ludwig Thiele spoke of Blockchain tech in reverent terms.

“Blockchain-based technologies offer up the chance of simplifying complex intermediation processes for payment and settlement activities. Virtually all payment service providers are therefore currently looking for ways to apply this technology,” said Thiele. “Its use in payment transactions is an obvious choice, as the cryptocurrency bitcoin has already been created for this purpose.”

The bank’s new partner, The Deutsche Börse Group, was founded in 1993. The publicly traded company organizes marketplaces for trading commercial stocks, shares, and other securities. The Group hosts several exchanges and marketplaces, such as the Frankfurt Stock Exchange, Eurex, Xetra, and Clearstream. Located in Frankfurt, it has over 5,200 employees located in offices around the world, including all of the major financial centers.

The company describes itself as one of the world’s largest exchange organizations, covering the entire process chain, from the monitored execution of trading orders, clearing, netting and transaction settlement through to post-trade custody of securities as well as the necessary electronic infrastructure and the provision of market information.

“Along with the Deutsche Bundesbank we are innovatively and creatively addressing potentially radical technological opportunities for the financial sector. We will continue to do our utmost to leverage blockchain’s efficiency potential and to better understand and minimise the associated risks of this technology.”

– Carsten Kengeter, Deutsche Börse AG CEO

The central bank discussion around blockchain technology and centrally issued digital currencies began in November 2015, when the Bank for International Settlements (BIS) called on all central banks to assimilate digital currencies, not fight them.

Many reports followed from other central banks, including a paper from the Bank of England in July. The document state that a digital currency issued by a central bank would be, “economically equivalent to the establishment of an online-only, reserve-backed, narrow bank alongside the existing commercial banking system.”

The BoE paper describes how such a currency would have many advantages over the commercial bank-driven money that we have today, such as a three percent boost to the country’s GDP. To achieve such results, a currency would have to be designed to bypass the entire commercial banking infrastructure and allow a government-run bank to issue all of the currency in circulation directly to its users.

The Bank of England’s Deputy Governor of Monetary Policy, Dr. Ben Broadbent, reiterated the point in March: “Shifting deposits away from commercial banks, and towards the central bank, would therefore make for a ‘narrower’ banking system – a ‘narrow’ bank being one whose assets are as liquid as its liabilities. In principle, it would also make for a safer one.”

“If a CBDC provided competition for commercial bank deposits, one outcome could be a reduction in deposit funding available to commercial banks, undermining their ability to provide credit to consumers.”

– Victoria Cleland, Bank of England Chief Cashier and Director for Notes

via Bravenewcoin.com


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