Central banks will use distributed ledger technology (DLT) to settle high-value interbank payments within the next five to ten years, predicts the chief executive of Ripple.
Brad Garlinghouse was speaking to Bloomberg at the recent FinTech Festival in Singapore which has gathered the great and good of the fintech market, including the San Francisco startup Ripple which focuses on blockchain-based, cross-border payments and has itself received positive comments from ex Federal Reserve chairman Ben Bernanke.
Garlinghouse told Bloomberg that "it’s only a matter of time" before central banks adopt blockchain for interbank settlement, adding that once the technology catches on with one central bank it will soon be adopted by others afraid they will miss out.
“Once that movement takes hold, that acceleration goes quickly. Is it one year or is it five years? It’s probably somewhere in between,” he said.
Bullish as they may be, Garlinghouse's comments do not come out of the blue. A number of central banks have been experimenting with blockchain technology in the last year.
The Bank of England has conducted a proof-of-concept with Ripple which was completed in July and led the bank to comment that it "was a useful exercise to develop the Bank’s understanding of synchronisation and possible technical solutions".
In November last year the German Bundesbank teamed up with Deutsche Börse to develop a prototype for blockchain-based settlement of securities.
And just this week, the Monetary Authority of Singapore, the country's central bank, released the source-codes of three successful distributed ledger prototypes for inter-bank payments, in an effort to encourage other financial institutions and central banks to experiment with the technology.
Central banks have also exercised caution towards blockchain projects though with the German Bundesbank, the European Central Bank and Bank of Japan all stating in recent months that DLT is not yet suitable for retail payments in the eurozone or mature enough for large-scale applications like real-time gross settlement.