IBM's goal is to eventually expand blockchain capabilities to support central bank-issued digital currencies, securities, bonds and structured financial assets, the firm has said.

Financial firms operating in 12 currency corridors are using a new system powered by blockchain to process cross-border payments, in the latest breakthrough for the nascent technology slated to save banks billions of dollars while shaving down settlement times. 

Technology behemoth IBM, along with partners Stella.org and KlickEx Group, has built a solution that intends “to improve the speed in which banks both clear and settle payment transactions on a single network in near real time”.

In today's market, making international payments can be “costly, laborious and error-prone,” IBM has said, and the involvement of multiple intermediaries means payments can often take weeks to clear. 

This is where blockchain steps in. 

Using a blockchain distributed ledger, all appropriate parties have access and insight into the clearing and settlement of financial transactions. 

“It is designed to augment financial flows worldwide, for all payment types and values, and allows financial institutions to choose the settlement network of their choice for the exchange of central bank-issued digital assets,” IBM said. The solution is processing live transactions in 12 currency corridors across the Pacific Islands, Australia, New Zealand and the UK. 

A blockchain is a virtual distributed ledger of transactions shared peer-to-peer that can record ownership across a public network of computers rendered tamper-proof by advanced cryptography. The technology is renowned for facilitating bitcoin and other crypto-currency transactions. 

IBM has said its solution could make it possible, for example, for a farmer in Samoa to enter into a trade contract with a buyer in Indonesia. The blockchain would be used to record the terms of the contract, manage trade documentation, allow the farmer to put up collateral, obtain letters of credit and finalise transaction terms with immediate payment, “conducting global trade with transparency and relative ease”. 

The World Bank estimates that initiatives to modernise payments and provide financial access could improve the flow of currency and commerce, and help achieve its goal of extending financial services to one billion people by 2020. 

"With the guidance of some of the world's leading financial institutions, IBM is working to explore new ways to make payment networks more efficient and transparent so that banking can happen in real-time, even in the most remote parts of the world," said Bridget van Kralingen, senior vice president of IBM Industry Platforms.