There is much talk about blockchain and its various applications and possibilities, so hearing about a vision for the future of blockchain applications from another perspective is always welcome. Thomas Jordan, president and chairman of the board of Switzerland’s central bank, recently gave his views on blockchain and how it was changing the banking industry. The decentralization behind blockchain is the exact opposite of the history of the banking industry, and he noted that the introduction of the technology was turning his industry on its head in many ways.
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At the recent Sibos conference in Switzerland, Thomas Jordan, the president and chairman of the board of Switzerland’s central bank, addressed an audience of over 8000 financial industry professionals. In a wide ranging discussion, he spoke about the modern history of the financial industry and its focus on centralization to provide security and efficiency for the banking industry.
In particular he referred to the centralized clearing houses, formed in the 1940’s, and the modern Six Interbank Clearing system in 1987 as good examples of how ever more centralized operation has been seen by the entire industry as the solution for improved operation and cost control.
He then juxtaposed the concept of blockchain and distributed ledgers, which are a complete contrast to that centralized ethos, with decentralization at the core of blockchain’s design. Noting that the initial attractiveness of blockchain for the banking industry is the promise of operational cost reduction, he said "Such systems could render the reconciliation of transactions and balance data between banks and the third-party system obsolete. The paradigm seems to have been turned on its head. Decentralization, not centralization, now appears to promise the greatest efficiency gains”.
He went on to suggest that the process of decentralization will not eradicate the desire for centralization within the industry, and rather than the current system simply being replaced by decentralized ledgers, he envisions a hybrid system, with the new technologies coexisting and blending with more traditional systems.
This take on the possibilities of blockchain from someone at the heart of the traditional fiat banking system is interesting, in that it reveals very clearly the paradigm shift that the cryptocurrency industry and blockchain represent. After a century or more of consolidation and centralization, increasing control and power for the few, this breakthrough of blockchain and its decentralized ethos is a direct challenge to old thinking in a way that has perhaps never been seen before in the banking industry.
It is unsurprising vested interests are pushing back against this radical change, not just of operation, but the fundamental structure of banking and money. The focus on integrating blockchain into existing systems may play well with the banking industry itself as a possible future, but is that really likely to be the route to the most efficient systems possible? That seems, given the two opposite ideas behind them, unlikely.