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There has been an ongoing debate related to the potential benefits of blockchain technology to improve the world of international payments. Blockchain helps in eliminating the primary issue of tackling the complexity of payments networks caused by the fragmentation of the financial industry. This has also made it impossible for individual banks to deal directly with all other banks on a global scale.
Every bank currently maintains their own unique ledgers, which result in not sharing a single version of the truth. Additionally, the coordination between these banking institutions is time-consuming and prone to errors, owing to the reliance on the manual interventions by back-office teams. Furthermore, someone needs to perform currency conversion at either end, and different parties need to manage liquidity levels at nostro/vostro accounts, which involves settling against central bank accounts as well.
The Rise of Blockchain
Blockchain promises to provide the payments industry with a single vision of truth. By leveraging smart contract-enabled blockchain, organizations can benefit from a single ledger and transactional engine, which helps in maintaining transactions and balances. It also promises a day where the entire payments system will as single, common digital objects, making messaging and reconciliation unnecessary.
Currently, most of the decentralized solutions being created focus on improving payments processes through the digitization of the messaging layer. By creating single, digital representations of payments, it also helps in enforcing transactions on proprietary ledgers, connected to one another with some inter-ledger protocol. This is indeed a significant improvement on today's message-driven payments processes.
Tokens: Dominating future transactions
As an improvement to the current payments scenario, digitally native tokens can act as a store of value. It can be a part of the same ledger--where payments, commercial bank and nostro balances are stored. The use of tokens can help in exchanging liquidity between liquidity providers and market makers in real time on a global scale. To achieve such a feat, tokens need to spread out universally, while having the ability to support the liquidity necessary today in the currency markets.
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