January 26

Blockchain Tech Helps Banks Settle International Transactions

The distributed blockchain technology that powers the cryptographic currency Bitcoin has become a subject of intense interest for many well established businesses worldwide. Making good use of the blockchain would seem to hold the promise of solving quite a few longtime problems that have plagued many industries for decades.

The cryptographic currency Ripple was designed from the start to help banks deal with an especially persistent issue, for instance. By allowing banks located anywhere in the world to settle their accounts with others located elsewhere, this technology has made some truly impressive inroads quite quickly.

Cross-border Settlement Has Been a Thorny Issue for Many Years

Every established, licensed bank operating today is part of a national financial system that regulates its behavior and sets limits on what it is allowed to do. When functioning strictly within their domestic borders, banks everywhere enjoy a level of predictability and regularity that stems specifically from this general type of relationship.

As soon as banks find themselves needing to transact with others located in different countries, however, things tend to become quite a bit more complex. While certain systems like the SWIFT telecommunication standard facilitate various common types of transactions, there are plenty of other regularly experienced needs that go without such targeted types of support.

In particular, banks have traditionally found it challenging to settle accounts and transactions denominated in currencies other than their native ones. In some cases, a financial institution might be forced to use a number of foreign exchange tools simply to hold up its end of a particular agreement. That can expose a bank to risks associated with fluctuating exchange rates and other problems, while adding complexity to what should seemingly be a fairly simple process.

Blockchain Settlement Technologies Streamline the Situation

Fortunately, things are starting to change for the better. As blockchain technology became more mainstream, many realized that it could be used to address the longstanding problem of cross-border settlement for banks.

While only a very small fraction of such activity currently makes use of the blockchain, growth has been impressive enough that few expect this to remain the case for long. As a result, banks all over the world are likely to benefit from the technology that underpins Bitcoin and other cryptographic currencies in the future.

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Posted January 26, 2019 by admin in category "Financial