The Hong Kong Monetary Authority joins the chorus of experts on DLT. Image: Shutterstock
In a recent white paper commissioned by the Hong Kong Monetary Authority (HKMA), distributed ledger technology got yet another affirmation that the financial world is ready to accept the unique benefits and engage with the unique challenges of blockchain-based solutions for cross-border payments and other use cases.
Echoing sentiments from the recent U.S. Federal Reserve report on the same subject, the HKMA report pointed out the key strengths of distributed ledger technology (DLT), highlighting the potential cost savings, complete traceability of records and transactions, and resiliency of the technology that could fundamentally change the banking and payments industries.
However, the HKMA report zeroed in on the specific transitional issue of interoperability, not just between different DLT networks, but between legacy technology and the new technology as it takes hold. The process will likely be gradual, meaning that a standard protocol that connects different types of ledgers (like the Interledger Protocol) will be needed. The report notes:
“The complex financial world, for example, already has a comprehensive set of multifaceted financial transactions systems, which work together to perform many different kinds of financial transactions. While some of these may gradually migrate to a DLT base, that process is likely to be gradual. This means there will be a mixture of legacy financial systems and newly emerging DLT systems working together at the same time, creating the need for an interfacing mechanism between legacy systems and DLT systems.”
In another similarity to the recent Fed report, the HKMA hones in on the need for governance and shared rule sets to ensure accuracy and trustworthiness in DLT systems. This question carries particular weight in Asia and the Pacific region, where each country has its own currency and clearing system, and cross-border payments are common.
While the question of how the legal framework currently underpinning our global financial system will govern this technology is a new and challenging topic for many companies in fintech, Ripple has been leading the charge in establishing governance and rules for integration of our infrastructure solution.
Additionally, in 2016, Ripple created the Global Payments Steering Group (GPSG), the world’s only blockchain bankers’ network with defined rules and governance. 2017 will be a crucial year in policy and regulatory decisions that will determine how DLT is integrated into the world’s financial infrastructure. That work has already begun.
HKMA joins a growing chorus of global governments who recognize the present and future utility of a financial system that is immutable, works in real-time, facilitates interoperation between networks, and cuts costs at every level. Though there are steps we must take to bring the Internet of Value into being, forward-thinking leaders are paving the way.
Read the full white paper here.