- OMFIF presents a report on blockchain technology and the advantages of Ripple products as an alternative to SWIFT.
- Report indicates a reduction of correspondent banks worldwide which may be an opportunity for XRP and DLT.
A new report presents blockchain technology as a solution for multiple sectors. From governance, finance, data access, scalability, the report from the Official Monetary and Financial Institutions Forum (OMFIF), a think tank that focuses on central banks, covers different types of blockchain: private, public, and consortium. Ripple products are part of the solutions presented.
According to the report, blockchain technology is appropriate for improving several key banking system functions such as payments, settlement, and transaction validation. The report points out that the DLT technology on which XRP operates, for example, can bring improvements in 5 key points: security, speed, transparency, traceability, cost, and risk management.
Implementing an XRPL-based system could reduce the vulnerability in the traditional banking system and its single points of failures. The report makes the following example:
The centralised nature of legacy financial systems makes them vulnerable to single points of failure. For example, a single-point attack on an intermediary responsible for payments, clearing or settlement could suspend services to the entire system, leading to widespread outages among payments services. By creating a distributed network, a DLT-based system could eliminate these single points.
In addition, distributed general ledger technology could improve the delivery and payment feature required by certain banking services. Therefore, XRP could be applied to eliminate an intermediary in a transaction and remove credit risk. That way, transactions recorded by a banking institution could be “cheaper”, according to the report.
XRP and its benefits to the traditional financial system
The report surveys several banking institutions that agree on the disadvantages of the SWIFT network for making transactions. These are costly, have many obstacles, and involve many parties to be completed. In addition, one banking institution representative surveyed stated that the SWIFT network is not appropriate for corporations:
(SWIFT) It’s really just bank-to-bank messaging, so again it falls short. Shrinkage and consolidation in the number of correspondent banking channels have reinforced higher costs associated with cross-border payments as institutions seek to reduce their risk exposures (…). Circumventing this costly system is widely regarded as the main motivation for applying DLT to cross-border payments, as there are real efficiency gains to be achieved.
Highlighting the advantages of Ripple products that use XRP, such as On-Demand Liquidity, the report notes that a bank can eliminate the complicated process required by SWIFT and replace it with an XRP pool. That way, a bank can allocate less liquidity as part of a service and still obtain the same amount of transaction volume in global payments:
The bank only has to hold its domestic currency and maintain one account with XRP, with only enough XRP to service its largest expected payment obligation. The process minimizes the number of intermediaries and their markup on spreads.