A project endorsed by leading banks has started beta testing a peer-to-peer network that aims to use blockchain distributed ledger technology to cut billions off the expenses of handling foreign exchange transactions. Former Citi and Deutsche Bank currencies supremo Andy Coyne, Cobalt DL’s initiative is the most recent to transfer forward with serious real world uses of a technology which promises to simplify banks bulky computer foundation. Like other blockchain developments under way, it seeks to generate large amount of savings by making exclusive documented record of a transaction or contract and giving all parties access to it. The system is schedule to go live next year.
Presently multiple files for currency trades have to be made for buyer, seller, broker, clearer and third parties and then continuously reconciled across multiple systems. The move into beta-testing follows a year designing and proving the viability of the new scheme with one of the largest FX market-making banks. The whole concept of having a single record that is shared is obvious, Coyne told Reuters. But the reality of making that work is about delivering a trusted peer-to-peer network when each institution has lofty necessities for data surveillance. It is a great test case (for distributed ledger technology). These are all independent contracts which are created, live and have finality. They have at least two and sometimes more participants. Two parties can share a contract with it just needing it to be recorded once.
Coyne, who until last year was chief executive of ICAP-owned currency market infrastructure company Traiana, declined to name the institutions involved in the next stage of trials but said they included several of the top-10 banks who dominate the giant $5 trillion a day global market in currencies. The initiative also comes at a time when banks are struggling to redesign many of their internal business models, including what were previously cash-cow FX franchises, in the face of higher capital requirements and regulation.