The Bank of International Settlements (BIS) has published a report arguing that distributed ledger technology (DLT) could help central banks replace their aging payment systems.

BIS, which is effectively a bank for central banks, commissioned the report to look at both DLT and cryptocurrencies with the aim of clarifying their applicability in a central banking context.

While central bank-issued cryptocurrencies are still largely speculative, it concludes, DLT has shown their potential utility in the industry. Such a digital currency would be of particular utility in countries such as Sweden which are seeing a reduction in the use of cash, the paper states.

Most notable in the paper’s findings, though, is that DLT is of particular interest to central banks due to a need to upgrade existing payment systems.

The paper states:

“One of the reasons for the interest in DLT is that many central bank-operated wholesale payment systems are at the end of their technological life cycles. The systems are programmed in obsolete languages or use database designs that are no longer fit for purpose and are costly to maintain.”

The paper comes amid growing interest in DLT and cryptocurrencies worldwide, with various central banks experimenting with applications of the tech. Bank of Canada, the Monetary Authority of Singapore, the Bank of England and the Central Bank of Brazil are all attempting to implement real-time gross settlement (RTGS) systems onto DLT platforms, while others have expressed interest.

Further, several central banking authorities have already moved to experiment with cryptocurrencies. Last week, The Reserve Bank of India hinted that it was researching what it called a “fiat cryptocurrency” as a digital alternative to the rupee. Officials in Russia have also expressed support for a national cryptocurrency

The BIS paper states, however, that while interest exists in central bank-issued cryptocurrencies, there is confusion in institutions surrounding what they actually are. As such, its authors provide a taxonomy of terms to clarify the potential of cryptocurrencies.

BIS headquarters image via Shutterstock