Fiat Currency on a Blockchain

Assessing the Impact of Combining Blockchain Technology with Central Bank-Backed Currency
by John Dwyer, August 19, 2015
Industry Trends


The implications of putting central bank-backed fiat currency on a distributed ledger such as Blockchain are profound. This report sets out the implications for management of an economy, the potential to reframe the decentralized consensus debate, and how such a change could assist implementation of Blockchain 2.0 technology into the capital markets.

The potential benefits to central banks / governments / regulators of fiat currency on a Blockchain are profound. In broad terms, liquidity within the financial system would be optimized thus benefiting the banking and non-banking sectors of an economy. Furthermore, all transactions within an economy could be tracked on a real-time basis, providing granular, bottom-up information on the economy.

There would be acceleration away from physical cash and a movement towards micropayments. Very small transactional payments (say, $0.00001), which are not cost-effective in legacy payment systems, would be possible. The knock-on implications of this in terms of democratizing content online are significant and are likely to be leveraged into the Internet of Things, where precise costing of usage of devices may be critical.

Finally, the regulators could begin to wrestle back control of the Blockchain technology debate and design their own blueprint of distributed ledger architecture. Exploring this area provides additional perspectives on how Blockchain 2.0 technology could evolve to accelerate its adoption into capital markets.

“Many issues related to Blockchain remain unclear, and we are still in the early evolution of the story. However, the next big question relates to implementation and putting off-chain financial assets onto a distributed ledger. For a variety of reasons, central bank-backed cash on a Blockchain-type ledger could assist with this migration,” says John Dwyer, senior analyst at Celent and author of the report.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

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Table of Contents

Executive Summary


Central Banks Catalyze the Blockchain Debate


The Benefits of Fiat Currency on the Blockchain


Impact on Capital Markets



Blockchain 2.0



Decentralized Consensus



Implementing Asset Migration to Blockchain




Leveraging Celent’s Expertise



Support for Financial Institutions



Support for Vendors


Related Celent Research


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