A new research paper published by South Africa’s FirstRand Bank explores the world of central banks and blockchains, suggesting that the technology could usher in a "new epoch" of monetary oversight.
Titled “The Advent of Crypto Banking”, the report examines the question of central bank-issued digital currencies, a topic that recently came to the fore when the European Central Bank announced this week that it was jointly exploring the concept in partnership with Japan’s central bank, the Bank of Japan. Those two institutions are expected to publish research of their own next year.
Other central banks, notably the UK's Bank of England, have been actively exploring the technology for use as a basis for a new kind of digital currency. And, in June, Canada's central bank unveiled a digital money prototype it has designed, dubbed "CAD-Coin".
The FirstRand Bank paper is, in part, a deeper dive into what a central bank digital currency might look like, invoking the term “sovereign blockchain” as it weighs what officials could use the system for if it was fully realized.
The authors note:
“Once such a sovereign blockchain is created with a [central bank cryptocurrency], other financial instruments such as bonds, equities, derivatives and even land and car registries could migrate to the same sovereign blockchain. This would allow the central bank to conceivably see the creation of all commercial bank assets in an economy.”
Another benefit of a sovereign blockchain, according to the paper, would be the ability to use that complete visibility to promote tax compliance. Further, smart contracts could become a mechanism for collecting tax revenue in real-time.
“Tax collection could be revolutionised through the use of smart contracts on a blockchain,” the authors write. “Tax could be collected at the point of transaction in real time, changing the entire system of tax collection from 'after-the-fact collection' to 'in-the-moment payment'.”
Though speculative in nature, the paper does argue strongly that blockchain technology could, if fully applied to the way central banks function, could have a deep and significant impact.
“There is no doubt that the way these services are performed will change,” the authors conclude. “We stand at the threshold of a new epoch in financial services."