IBM could create blockchain-based digital payments infrastructure for central banks

IBM has held informal talks with some central banks about building an infrastructure that can provide them with digital cash and payments systems using the same underlying technology as virtual currency bitcoin.

According to a Reuters report, which cited a source, IBM could adopt the blockchain ledger – which records transactions and is the technology that underpins bitcoin – and apply it to major world currencies.

People could then make payments and transfer money in real time without the need for a bank or clearing service, which would slash transaction costs. Blockchain is open and accessible by anyone, not just a particular company. A specific country would have its own open ledger, according to Reuters.

"When somebody wants to transact in the system, instead of you trying to acquire a bitcoin, you simply say here are some US dollars," the source said. "It's sort of a bitcoin but without the bitcoin."

But the difference between bitcoin and this plan is the fact central banks would control currencies.

Celent financial services analyst Gareth Lodge said the industry is still at the evaluation phase but blockchain has promise. 

"Bitcoin is interesting and has a future but it is the underlying blockchain technology that is interesting," he said.

IBM has vast consulting experience in the finance sector and also has blockchain experts, according to Lodge "I think IBM understand both parts – the technology and the needs. But without getting the requisite central bank blessings, then the work may prove academic."

The Bank of England recently said it could issue its own digital currency in the future, in the same way it issues bank notes. A research paper from the bank, One Bank Research Agenda, said bitcoin has proved it is possible to transfer value securely without a trust.

“While existing private digital currencies have economic flaws which make them volatile, the distributed ledger technology that their payment systems rely on may have considerable promise,” said the report. “This raises the question of whether central banks should themselves make use of such technology to issue digital currencies.”

In a tweet, chancellor George Osborne said: “Good that @bankofengland looking into digital currencies – need to ensure UK customers benefit from new tech and #Fintech firms flourish.”

Speaking at the Gartner Symposium in Barcelona in November 2014, UBS CIO Oliver Bussman said blockchain will "massively simplify" the way we transact.