Central banks exploring blockchain use to counter cyberattacks, payment inefficiency, BIS chief says

12 November 2018 3:08pm

2 November 2018. By Neil Roland.

Central banks are experimenting with use of distributed ledger technology to help payment systems recover from cyberattacks and improve the efficiency of payments, clearing and settlements, said Agustin Carstens, head of the Bank for International Settlements.

“There’s much unheralded innovation going on,” Carstens, BIS general manager, told a Miami conference. “Central banks are working overtime to make the existing payment infrastructure more robust, more resilient and more timely.”

He added that current versions of blockchain and other distributed ledger technology, or DLT, “are not any better than what we already have today".

A joint European Central Bank and Bank of Japan study earlier this year found that DLT processing times would be three times longer than those for current systems, Carstens said.

The Bank for International Settlements is the umbrella for the world’s central banks, such as the US Federal Reserve.

Cyberattacks

Carstens said central banks sometimes have trouble complying with international standards calling for systemically important payment systems to resume operations within two hours of a cyberattack or other operational outage.

Banks first have to diagnose the problem and then determine whether the system can be safely turned on again.

Some central banks have adopted, and others are exploring, different arrangements for “operational resilience,” he said. These arrangements include ones that are DLT-based, he said.

Payment systems

Central banks also are experimenting on a continuing basis with DLT to enhance “operational robustness” with payment, clearing and settlement systems, Carstens said.

His speech noted that a 2017 report by another global authority, the Committee on Payments and Market Infrastructures, provided an analytical framework for central banks to use in researching DLT use.

“Developments to date suggest that DLT bears promise but that there is still a long way to go before that promise may be fully realized,” the report last year said. It cited a need for sound legal underpinnings, robust governance, useful technology and data controls.

Blockchain and other DLT forms store data on payment, clearing and settlement transactions in a decentralized way. It records transactions by Bitcoin, the cryptocurrency, which is viewed less favorably by regulators than blockchain.

Fintech Regulation in 2018