Argentina’s central bank takes part in blockchain clearing pilot

The Central Bank of Argentina (BCRA) will help test a new interbank clearing system that uses blockchain technology to execute smart contracts.

The pilot was announced on April 16 by Gibraltar-based firm IOV Labs, which has developed a proof of concept using its RSK blockchain network.

In 2019, a consortium called the “financial innovation roundtable”, which included the BCRA, began designing the system. IOV Labs was chosen to provide the underlying technology for the platform.

The system will allow participants to “make transactions in a standardised, reliable and secure manner,” IOV Labs said in a statement. Users will also be able to track a transaction throughout the system. Further specifications, in addition to the length of the pilot, have not been provided.

IOV Labs claims the RSK network is the “world’s most secure” smart contracts platform. Smart contracts are self-executing contracts with terms of agreement between two parties written directly into code, allowing for the creation of decentralised applications on a blockchain.

The BCRA, along with a number of Argentina’s largest financial institutions – including Banco de la Provincia de Córdoba, BBVA, Industrial and Commercial Bank of China and Banco Santander – will participate in the pilot.

The Argentine central bank has “chosen to experiment on a side-chain with smart contracts, with timestamping provided by the bitcoin blockchain,” Michael Mainelli, chairman of London-based think-tank Z/Yen, tells Central Banking. “It is good to see the central bank conducting an experiment on the potential applications of smart ledgers.”

But Mainelli believes it is unlikely the technology will be adopted after the pilot. “Experimentation and learning are always good. However, BCRA is likely to conclude, as have many central banks, that blockchain is of little if any benefit to clearing infrastructure or retail payments,” he says.

“If they do find a worthwhile application, they will also be likely to conclude that a private national ledger is the next stage of any development.”

Others are more optimistic. “An interconnected blockchain and a public language of code for writing smart contracts that execute across that blockchain would create competition in a range of areas,” says a senior associate at law firm Freshfields Bruckhaus Deringer. For example, they say, private transactions between individuals would be less reliant on intermediary service providers.

Once the testing phase is over, IOV Labs will decide whether to expand the network to more financial institutions. It will also consider whether the network can be used for other areas of finance. Diego Gutiérrez Zaldívar, chief executive of IOV Labs, says the pilot platform would help build “an integral, collaborative ecosystem in line with current modern technological advances”.