Abstract
Since bitcoin's peer-to-peer payment was the first popular blockchain application, blockchain is often regarded as a technology for financial services. A number of blockchain applications have been developed for the payment and settlement systems. Indeed, payment and settlement have become a popular blockchain use case since this technology enables new ways of managing money and facilitating payments with ease and in more efficient way. This chapter offers an analysis of how blockchain can transform payment and settlement systems by facilitating the implementation of clearing, transfer of funds and execution of the final settlement in order to provide a payment to a beneficiary. It provides a perspective on how blockchain solutions can address the existing challenges such as slow processing times, high fees and the lack of transparency in cross-border transfers. This chapter provides a perspective on how substantial efficiency gains can be achieved by using blockchain for digital assets' settlement process by decreasing transaction costs and reducing settlement risk as well as counterparty risk (the risk that a party can default on its obligation). It presents a variety of examples of payment and settlement systems being transformed by blockchain such as remittances, letter of credit and export transactions, trade finance, and supply chain finance. Moreover, several blockchain-based solutions with promising potential applications to increase the bankability of unbanked people are currently in proof-of-concept prototype and experiment phases. This chapter also reviews these applications.
Published Version
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