Can blockchain eventually replace central banks?

02 December 2018

  • Blockchain would not be able to replicate all the roles of central banks
  • Barclays Bank Ireland CEO argues central banks are vital for economy
  • Kevin Wall believes it would be a dangerous world without central banks
  • He also suggests banks will become partners with fintechs

Barclays Bank Ireland CEO Kevin Wall believes it would be impractical to think blockchain will replace central banks.

Blockchain – a distributed and decentralised public ledger recording transactions simultaneously across numerous blocks – is the technology behind Bitcoin and a host of other cryptocurrencies.

And some critics believe that since the financial crisis exposed the complexity and inherent risk in the global financial system, a new decentralised system using cryptocurrencies and blockchain would be simpler in the coming decades.

But Mr Wall believes central banks play a vital role in the global economy, something that a decentralised blockchain system would not be able to replicate.

“Central Banks have evolved, particularly when it comes to the prudential as well as the supervisory role they play,” said Mr Wall, who has risen up the global bank with roles in the US, Australia, Singapore and Hong Kong since graduating from Warwick Business School in 1981. “A world without central banks would be a dangerous world.

“By and large they do a good job. They are of course not perfect, for example in the lead up to the financial crisis, where with the benefit of hindsight, it was clear that mistakes were made by allowing risk spreads to decline too far for too long.

“But I think something that circumvents the role they play would not be a good thing. Their roles are much broader now; all of us bankers, consumers and households should appreciate what they do.”

Technological advances have disrupted many sectors since the turn of the century, from newspapers to the music industry, and many are predicting that banking is next, especially with the implementation of the Payment Services Directive in the EU and open banking in the UK, which forces banks to share privately held customer information with third party providers (TPPs), under certain conditions.

There are a plethora of fintech companies circling the banking sector and looking to disrupt the big players.

But in an interview with John Thanassoulis, Professor of Financial Economics, Mr Wall argued that this increased competition will actually lead to some new and exciting partnerships with the technologically savvy start-ups.

The former non-executive director of Which? and a former trustee director of the Barclays Pension Fund said: “At Barclays, we pride ourselves on being innovative. In fact 2018 is the 50th anniversary of the first ever ATM in the world, which was a Barclays ATM in Enfield, London.

“We also did the first blockchain trade financing deal, so while we are a big organisation and big organisations are not associated with innovation, we pride ourselves on working to be innovative.

“We are working with a lot of fintechs, taking some equity stakes in some of them, and we have some very innovative labs in London, Tel Aviv and other parts of the world. So, for us there is a competitive threat there, but we also work in collaboration.

“When you look at fintechs and the payment space more broadly, the future is where you have more established organisations like Barclays working very closely with these new fintech players. Competition is good, but there is also a complementarity around this space that will continue.

“Consumers almost view banking as a utility now. They want payments with convenience and hassle free more and more and there is a lot of development in making that more efficient. A lot is happening away from the consumers’ eyes, in the plumbing, where there will be greater efficiency and more security when it comes to payments in particular.”

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