We Should Focus on Tokenizing Real Assets Says Germany’s Central Banker

[Mercury]

Burkhard Balz, a German politician who is now member of the board of the German central bank, Bundesbank, has argued blockchain tech really adds value when tokenizing real assets.

“This requires innovative and sustainable solutions, how we can tokenize money, but also different forms of existing assets and transform them into a healthy digital ecosystems,” he said.

Detailing a number of prototypes and experimentations by the central bank, Balz said there are areas where blockchain tech adds little.

“For example, we see little added value from the use of blockchains in intra-European payments, which is already extremely secure and efficient,” he said, further adding:

“In contrast, cross-currency payments, which are largely handled through correspondent banking, could well benefit from systems using blockchain technology.”

It’s in tokenization, however, where he seems to see the most potential, with Balz stating:

“For securities settlement or the provision of collateral, blockchain technology should also offer greater potential for savings. A reduction in the number of intermediaries, the access of all parties to a common database as well as the automatic processing of corporate actions could significantly reduce processing times.

As a result, many providers of financial market infrastructures are working to streamline existing trading and settlement systems, or even to provide new platforms for the trading and settlement of digital assets.”

Quite interestingly, Balz effectively argues for the use of one blockchain, stating according to a rough translation:

“I think it should be remembered that tokenization only adds value when there are effectively communicating platforms. We should avoid creating many small insular solutions that are not interoperable. I do not expect much of this in the long term from efficiency gains.”

He argued however that there should be permissioned access, so it doesn’t look like he has the public blockchain in mind, but Balz said:

“The composition of the various technological components, as we have seen in the bitcoin blockchain as a pioneer, fascinates me again and again.

A distributed database in combination with cryptographic hash methods, by means of a protocol in a computer network, ensures that a digital value (a crypto-token) can be transmitted from person to person. No intermediary is required for this, no central office confirming the transfer.”

In conclusion, while speaking at a conference by the Center for Financial Studies (CFS) earlier this month, Balz said:

“We should all work to find ways to use Blockchain technology where it really adds value: tokenizing real assets…

We are still at the beginning, but as many have realized, technical innovation is much more often evolutionary than revolutionary. Let us develop the potential of this technology together!”

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