An IBM-led project will enable the use of public blockchain technology to make international payments more efficient.
IBM is working with Stellar, a non-profit creating an open-source blockchain network for financial services, and KlickEx, a cross-border payments system delivering financial infrastructure for emerging markets, to create a more efficient way to make international payments.
The new system will use IBM’s distributed ledger technology to provide clearing and settlement of trades in real time, all on a single network.
Making international transfers more efficient
IBM aims to make the days of costly, error-prone international payments a relic of the past. “The IBM universal payments system is intended to simplify the way funds are exchanged around the world, and to reduce settlement time from days to seconds.
“Each payment is immutable once recorded, and settlement instructions are provided via smart contracts on Hyperledger Fabric.”
TD Bank, National Australia Bank and other institutions are lending their support by advising on the system in order to make expansion into other countries a possibility.
Using blockchain technology in a controlled environment
According to ZDNet, it is currently up and running on a regional basis in 12 corridors across the Pacific Islands, Australia, New Zealand and the UK. KlickEx is working with IBM to evaluate the characteristics and scalability of the network, as it is currently only supporting transactions in a tightly controlled environment.
Stellar will initially provide the network for settlement of transactions cleared on Hyperledger. The participating banks will conduct the transactions using a custom digital currency called Lumens, created by Stellar.
Both Stellar and IBM are part of a global project called Hyperledger Fabric, which is building open-source blockchain tools to support payment infrastructures.
A shift in payments infrastructure
Jesse Lund, vice-president of IBM’s global blockchain market development, said the network launched in the Pacific region as it has a relatively low payment volume, presenting less risk.
Lund predicts “a drastic shift in the construct of payments infrastructure” in the next five years.
IBM gave an example to Fortune of how this technology could be of benefit: “IBM said a farmer in Samoa will soon be able to contract with a buyer in Indonesia, and use the blockchain to record everything from the farmer’s collateral to letters of credit to payment.”
Co-founder of Stellar, Jed McCaleb, said: “Currently, cross-border payments tended to take up to several days to clear. This new implementation is poised to start a profound change in the South Pacific nations and, once fully scaled by IBM and its banking partners, it could potentially change the way money is moved around the world, helping to improve existing international transactions and advancing financial inclusion in developing nations.”