BIS Unveils Finternet for Global Finance Revolution
In A Nutshell
The Bank for International Settlements (BIS) has laid out a comprehensive vision for a global financial system of the future, dubbed as “Finternet,” that leverages unified ledger technology. This innovative framework aims to address and rectify many of the inefficiencies present in the current financial system by streamlining transactions, enhancing compliance, and safeguarding privacy. The concept, which was initially introduced last year and further elaborated in a recent paper co-authored by BIS Chief Agustin Carstens, suggests a transformative approach where unified ledgers act as a foundational platform for financial transactions.
Unified Ledger Technology: A Gateway to Enhanced Financial Transactions
Unified ledger technology, as outlined by the BIS, proposes a single platform where all components necessary for financial transactions—ranging from financial assets and ownership records to governance rules—are consolidated. This integration facilitates the execution of transactions over a common programmable platform, potentially resolving longstanding issues related to technical standards, governance, and the reliance on third-party messaging systems. The BIS envisions not just one, but a network of interconnected unified ledgers that communicate seamlessly with each other and with external financial systems through specialized applications.
Tokenization and Smart Contracts: Enablers of the Finternet
A crucial aspect of the Finternet and unified ledgers is the tokenization of assets, particularly money, to enable efficient transfers via smart contracts. This process necessitates the creation of a new role, that of a tokenization manager, responsible for ensuring compliance with regulatory requirements. The BIS’s proposal introduces a framework where digital representations of assets can be moved securely and swiftly, offering a glimpse into a future where financial transactions might be conducted with unprecedented ease and security.
Global Collaborations and Future Outlook
The concept of unified ledger technology has garnered attention and consideration from various global entities, including the international financial messaging service SWIFT and the International Monetary Fund (IMF), indicating a growing consensus on the potential of such a platform to revolutionize the financial landscape. Additionally, the BIS’s recent Project Agora, involving seven central banks, underscores the commitment to exploring the practical applications of this technology in facilitating central bank digital currency and tokenized money transfers.
Our Take
The BIS’s vision for a “Finternet” based on unified ledger technology presents a compelling case for the future of financial transactions. By addressing critical pain points such as transaction speed, compliance, and privacy, this approach has the potential to significantly improve the efficiency and security of global financial systems. However, the successful realization of this vision will require robust collaboration among central banks, financial institutions, and regulatory bodies to navigate the complex technical and regulatory challenges ahead. As this innovative concept moves from theory to practice, it stands to not only transform the financial industry but also redefine the way we think about money and assets in a digital age.
Sources
– Bank for International Settlements
