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Block chain and financial inclusion

Posted on June 29, 2017 by Sumita Kale

It is believed that financial inclusion can be more easily served through virtual currencies, "Opening cryptocurrency accounts is far easier than opening bank accounts. It is efficient, instant and free and is thus much more economically viable than traditional payment networks." (Money Control, 17th  June 2017). Blockchain technology is already being used in the Caribbean for financial inclusion " Bitt has built a blockchain platform that allows the central banks in the region to issue digital fiat currency (for example, Barbadian Dollars) directly onto the blockchain, instead of printing a similar amount of physical currency.  With this solution, anyone will be able download the Bitt app to their smartphone, go through the automated “Know Your Customer” validation provided by Netki, and immediately begin using their Bitt account to send or receive local currency, make payments, do instantaneous, inter-island transfers for low fees, or even speculate on digital currencies such as bitcoin.  Central Bank of Aruba’s Ryan Peterson spoke recently at Consensus 2017 where he shared that Aruba estimated that by increasing financial inclusion and reducing foreign banking dependency, this project has the ability to increase the GDP of the region by 3-4% per year, compared with current regional growth rates of about 0.5% per year" The details of ensuring that the validation of the identity of the entity meets AML and anti-terrorism financing rules can be read in this piece at International Banker, 21 June, 2017

Yet, there is a long way to go before this is possible in India, even though block chain and bitcoin are making their way through policy discourse - in January, RBI's Institute for Development and Research in Banking Technology published a White Paper on Applications of Blockchain Technology to Banking and Financial Sector in India, in April the government invited comments from the public on allowing virtual currencies (See https://www.mygov.in/group-issue/commentssuggestions-invited-existing-virtual-currencies-framework/ ) and on 27th June, the Finance Minister held an inter-ministerial meeting on Tuesday to weigh risks related to virtual currencies (VCs) like bitcoins (Business Today, 28th June, 2017). While nothing concrete has been spelt out by the government and the regulator on virtual currencies, a banking consortium led by State Bank of India has developed "a permissioned blockchain, Clear Chain (that) will enable banking consortium members who join the ledger to share KYC, ALM and CFT (Know Your Customer, Anti Money Laundering and Countering the Financing of Terrorism) details. The current version of the blockchain facilitates sharing of suspicious transaction reports, investigation reports, KYC data and cross-border wire transfer details" (Cryptocoinsnews.com, 2nd June 2017).

 

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