Introduction to the Problem
Financial institutions and major banks have had over a decade to experiment with and implement blockchain technology for cross-border and interbank settlements. Despite this, they have largely failed to act, leaving the world stuck with slow, costly legacy systems that cause unnecessary economic tension. The consequences of this inaction are far-reaching, affecting not just the efficiency of financial transactions but also the overall health of the global economy.
The Benefits of Blockchain Technology
Blockchain technology offers several benefits that could revolutionize the way financial transactions are conducted. It shortens settlement times, rewrites liquidity dynamics, and enables real-time capital mobility. These benefits have already been proven in crypto markets and are particularly impactful for emerging markets. For instance, blockchain-based settlement systems can reduce the time and cost associated with cross-border transactions, making it easier for businesses and individuals to participate in the global economy.
The Price of Inertia
The traditional finance system is riddled with inefficiencies, including queues for securities settlements, bank closing times, and routine foreign exchange transactions that can take several days. Each of these delays is effectively a charge on capital, a hidden cost paid in the form of unused funds in suspense accounts. This capital could generate income, finance new ventures, or earn interest in other markets. For example, in Brazil, cross-border personal payments are often processed through offshore bank branches before reaching destinations in the United States, Europe, or other Latin American countries, increasing cost, time, and compliance complexity.
The Future of Smart Contracts
At the turn of the millennium, analysts included “Internet risk” in their models, citing the possibility that online infrastructure could fail and disrupt overall operations. Two decades later, no valuation model includes a single line item for “internet risk.” The same development will take place with blockchains. Pricing “smart contract risk” into a business model in the future will sound as outdated as pricing “email risk” today. Once security audits, insurance standards, and redundancy frameworks mature, the default assumption will reverse: blockchains will no longer be seen as a risk but rather as infrastructure that mitigates it.
The Impact on Liquidity and Capital Mobility
The inefficiencies of the financial system result in opportunity costs for investors. With traditional private equity or venture capital, investors are locked in for 10 to 20 years before they see liquidity. In the crypto sector, tokens are often transferred in a fraction of the time and are freely traded on global liquid markets, negating what used to be a multi-stage process. This increased velocity of capital circulation rewrites the concept of a “liquidity premium,” or the additional return that investors demand for holding illiquid assets.
Blockchains and Developing Countries
Emerging markets bear the brunt of inefficiencies in the banking sector. For example, Brazilians cannot hold foreign currencies directly in local bank accounts, meaning every international payment includes a foreign exchange step. Blockchain technology allows for the direct settlement of transactions between different currencies, eliminating the need for intermediaries and reducing costs. Legacy systems also impose strict cut-off times, which can make real-time fulfillment impossible for companies operating across multiple time zones. Since blockchains operate 24/7, this limitation is completely eliminated.
Conclusion
The financial world has always viewed waiting as a risk, and rightly so. Blockchain minimizes this risk by shortening the time between transaction and settlement. The ability to instantly release and redistribute capital is a paradigm shift. However, banks deny their customers these benefits without good reason. Until banks, payment companies, and financial services fully embrace blockchain-based settlement, the global economy will continue to pay for its laziness. For more information on this topic, visit https://crypto.news/the-global-economy-is-paying-for-big-banks-laziness/.
Thiago Rüdiger is the CEO of the Tanssi Foundation, where he oversees the ecosystem growth and decentralization of Tanssi’s modular blockchain infrastructure.
