Published: Mon, October 16, 2017
Finance | By Loren Pratt

IBM develops blockchain system for banks

IBM Blockchain enables direct payments between two parties in any currency participating on the network while maintaining security. The system uses blockchain to reduce settlement time and drop the cost of global payments for consumers and businesses.

Both Stellar and IBM are part of a project called Hyperledger Fabric, which is building open source blockchain tools to support payment infrastructures.

Under the latest blockchain system, banks will make the transactions using digital currency Lumens and then depend on the local market makers for the conversation of Lumens into local fiat currency.

The blockchain has always been seen as a method to quicken (and cheapen) cross-borders payments, and now that movement - which includes a number of startups making moves privately - just got its highest profile advocate after IBM announced its own solution focus on banks.

The aim of the payments process is to speed up clearances and settlements on a single network in real time. It will reportedly process up to 60 per cent of all cross-border payments in the South Pacific's retail foreign exchange corridors by early next year. The companies are attacking the problem of global payments, which can be costly, laborious, and error-prone.

Today, making worldwide payments in developing countries can be costly, laborious and error-prone, with transactions in different currencies often requiring multiple intermediaries and taking days or weeks to complete. IBM and Stellar both will work together to move money across the borders right through the South Pacific. According to the World Bank, initiatives to modernize payments and provide financial access could help achieve the goal of extending financial services to one billion people by 2020.

That's the longer term objective but already the system is being used in 12 currency corridors between the Pacific Islands and Australia, New Zealand and the UK. It is being created to augment financial flows worldwide, for all payment types and values.

IBM gave the example of a Samoan famer entering into a trade contract with an Indonesia-based buyer.

To develop and deploy the blockchain process, IBM has gathered a diverse group of partners, including Banco Bilbao Vizcaya Argentaria, Bank Danamon Indonesia, Bank Mandiri, Bank Negara Indonesia, Bank Permata, Bank Rakyat Indonesia, Kasikornbank Thailand, Mizuho Financial Group, National Australia Bank, Rizal Commercial Banking Corp Philippines, Sumitomo Mitsui Financial Group, TD Bank, and other institutions. And blockchain will be used to record the whole thing from the farmer's collateral to letters of credit to pay.

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