London-based HSBC, one of the world’s largest banking organizations, considers the adoption of blockchain would have a positive impact on the UK’s central financial institutions. The bank believes the technology has the potential to modernize private and investment banks and improve central bank policies.
According to a document, obtained by The Business Insider, HSBC says that central banks’ operations have a number of disadvantages. But they will benefit from the use of the blockchain that will ensure transparency of transactions. Moreover, blockchain-based systems will give more accurate picture of the current financial system in the UK, allowing the government to enhance economy management.
A more profound knowledge of the economy will help to carry out “helicopter drops”, injections of money into the real economy. This will speed up the process of moving the funds into the economy. Economist Milton Friedman compared the concept with a flying helicopter dropping money to people.
The “helicopter money” would be outside money injected from a central bank and not related to a debt held by a private sector bank.
“If we move towards an economy where all transactions become recorded in real-time on a Blockchain type of technology, it will not be too dissimilar to the current eco-systems that many e-commerce giants have around the globe,” HSBC said in the document.
The integration, HSBC believes, will help the government to get better understating of the fluctuations and other processes occurring in the economy.
“Online e-commerce stores are able to give out loans to merchants without collateral, because they know all the flows already from the merchants’ point of view: from how much people are spending to the conversion rate of pages viewed to purchases,” the document reads.
“In the same way, a modernized monetary transmission system, based on real-time big data analysis through Block chain, could allow the government to balance the economy more efficiently and systematically.”
The blockchain-based systems will enable banking authorities to decide how much cash their need to funnel into an economy. But there is still some issues with using this helicopter money due to the lack of people’s trust. If the amount of money injected is too high, it could lead to inflationary problems.
“HSBC outlines the trust problem with helicopter money — in short, people are rightly skeptical of a central bank’s ability to work out how much help the economy actually needs. If it’s too much, helicopter money could be wildly inflationary,” the Business Insider wrote.
The research company TABB Research says the adoption of the technology within the capital market ecosystem is just a matter of time. A recent report, developed by the firm’s research analyst Shagun Bali, states the blockchain can improve the system of electronic transactions in capital markets.
“The blockchain landscape and evolving ecosystem present a unique opportunity and a fundamental foundational element for additional innovation in financial markets,” Bali noted.
Besides, the company says the first use cases of the distributed ledger technology should be expected as soon as Q2 of the next year. The solutions for equity clearing are anticipated in at least a decade.
Meantime, the consulting company GreySpark Partners suggests the technology could transform the financial industry in the next 5-10 years. The blockchain would minimize operational costs and eliminate the need for intermediaries, the firm noted.