“Trust rules the Financial Sectors!!”
Revolution is a sign of progress, we humans are best at adapting to new changes. It just took 50 years for us to shift from traditional pay notes to the Credit cards and it’s time to think more of it now. We are in the 21st century where everything happens in a click, why not the financial transactions to take the same scope?
BlockChain comes as an answer here to uplift the traditional prolonging financial transactions in just a Go with high transparency and security ensured at the same time. According to the perspective of financial institutions, it is the right time to take a complete shift towards digital channels where the world is already living in. A single right and smart decision can turn the economic face of the world to the brighter side.
Blockchain: A benevolence of financial transactions
BlockChain is a promise with technical confidence to make finance work better for everyone. This trending technology is set to change the culture of world financial activities right from the minor transactions to the global investments, serving as an ideal solution to the currently hidden hitches. Many global institutions have already started harnessing the benefits of BlockChain, the best example to quote here is The Bank of America reserving more than 50 patent rights related to the BlockChain technology. This spellbound mechanism of a decentralized form of money is the key factor that attracts more attention.
#1. A game-changing technology with disruptive innovation
Implementation of Blockchain technology in the financial sector brings down the complexity of long-standing challenges, welcomes advanced working models, and delivers new value propositions. The unique features of technology make it robust enough to shake the entire banking landscape and even more by making the banking industry obsolete.
#2. No middleman interference
BlockChain works on a decentralized network without any middle man interference. The peer-to-peer working model allows the owner to have the entire control of his assets in the form of Tokens. The time-stamped blocks carry the complete information of transactions done which are permanently recorded, reconciled and secured cryptographically. The Trades and Settlements, The Smart Contracts, The Finance Supply Chain, The Reserves and The Remittances are the major areas that acclimatize Blockchain Technology.
#3. Sharing embarks security
Sharing the ledger activity or the arbitrary data among multiple parties is the competing factor for BlockChain showcasing it as the most powerful technology to trigger trust and transparency instantly. The distributed ledger restricts easy tampering of data and ensures data recovery when a single point of the network fails.
#4. Records which cannot be reversed easily
BlockChain holds the most anti corrupt feature with hash power which makes it difficult to change the information in a block once it is recorded. We need to follow certain standards to alter the data in a particular block by changing the subsequent blocks also which is, in turn, a tiresome task and requires a consensus of the majority of the network.
Blockchain and trust travel together… how?
BlockChain adheres to an exclusive mechanism that quantifies the trust in a precise manner. Consider a small scenario that explains the transaction between the buyer and seller of equity. The following three key factors enable BlockChain to transmit trust and confidence in financial transactions.
The clearing is a process to figure out the buyer and the seller of an asset. The assets are stored in software wallets in the form of Digital Tokens where a Token can be described as a public ledger with a certain value and a private key. It requires immense research and analytics by the financial institutions to get an understanding of the ownership of an asset and the obligatory capital to buy it.
After identifying the buyer and seller of an asset, the Settlement is a process where the transaction takes place. In-fact here the monetary value shifts from point A to Point B without the third party indulgence. With the help of BlockChain, the settlement can be completed instantly unlike traditional ways.
#3. Custody P
A process which defines the storage of assets and how a user generally pays for the cache. Unlike the banking approach, Blockchain enables us to hold our assets by ourselves without any transaction cost indulged. Tokens take the form of assets here. Tokenization is an integral part of Blockchain Technology which acts as the key responsibility in building trust. Many financial institutions rely on the Token system to carry out their transactions securely.
The trusted financial companies encounter more stress when implementing the new strategies which can satisfy the customers pertaining to different sectors. Some may be investors, some just the profit seekers and the others are stockholders. BlockChain stands as the strong support pillar to all the financial institutions out there to encourage them in picking up the qualified risk which can disrupt the conventional working models. In fact, this technology can result in upbringing more liquid flows to world trade as the transaction costs get reduced drastically. This inspires more decentralized financial transactions to take place, increasing the scope for better price discovery and a financial model that benefits every sector of the community.
Let us understand the USD and EURO role in financial markets which define the Blockchain mechanism
Nothing else can stand as robust as Global Reserves while clutching different world currencies. USD, the prominent and dominant world reserve currency so far has started seeing the new turns over the period of past four years while the other major country currencies like EURO and YEN emerged as the largest shares since the fourth quarter of 2014. As per recent New York studies, the reserved share of EURO rose to 20.69 % by the fourth quarter of 2018 and still preserves its remittance. If we closely observe the universal SWIFT payment modes, EURO stood as the most preferred one than any other currency. The increase in the share value of foreign exchange reserves of the EURO attracted many international smart contracts to shift to ERC20 crypto payments and is a trending mode of international digital transactions.
Currency reserve and its importance in the global market
A currency reserve can be defined as a standardized mode of payment used as the foreign exchange to perform the Global transactions. The reserve can act as a strong barrier against all the negative impacts on the currency exchange rate. To make it simpler, a global currency reserve is a mode of payment for commodities like Gold, Silver, Natural Gas, and Oil. This currency is not only maintained by the respective owing country but also by all the other countries too.
The U-turn in global remittance
The US Dollar so far was the de-facto of global reserve currency and there is no doubt that the dollar is still a leader in global market transactions. Things always don’t take a single stand and for the past few years, there is continuous decline observed in the US reserves making space for EURO as the second most preferred international currency in global exchange despite its historic lows. The table below portrays the significant international role of EURO since 2018. The rise of EURO value encouraged the emerging market economies to shift to EURO currency reserves by selling their previous US market shares which indirectly strengthen the EURO presence. In addition to this, unilateral transactions of a few central banks consisting of major ones like the Central Bank of Russia also contributed to the intervention. In a deep view, all the tentative factors dowered the 0.5% growth of Euro’s international share. The EMU deepening and concentrating on Banking Union drove as the major influence factors to immune the presence of Euro drastically.
Euro and USD exposures
As the currency swap lines and international usage of currencies can be predicated easily, the threshold of exact swap lines can’t be estimated. As per recent news, The Federal Reserve is planning to extend its support for swap lines to encourage more US exchanges to shift towards Euro exchanges. This benefits the countries with large US liquidity shortages and the emerging market countries with large US market exposures. Though the swap lines are intended to foreign exchange initially, they play the main role in swap network including major countries and currencies which indirectly impact the global financial market and reserve rates. World support the trend and travel with it. The Euro is the current trend in both a digital currency and global financial markets which makes its mark stronger in Global share and remittance too. The Euro banknotes shipments to non–euro zones and the storage of digital ERC20 tokens are as stable as how it kick-started and now is all set to make new news. As per the market news, Russia has a larger demand to import the Euro currency and also the Eastern countries too. Even the Euro cash is utilized to CESEE countries which accounts for an average of 36 % of respondents holding the euro cash. The currency substitution index is one more reason to hold the Euro cash to a slightly larger extent.
The Conclusion which Constructs the Future of Global Reserves
The Euro and US dollars share the same hock exposure responsibilities which impact the net cross border transactions. The ups and down the share value indicates the rate of swap line shiftings which can forecast an economic development and also a slide down of financial markets.