Near the end of WWII, 44 countries met in Bretton Woods, New Hampshire. This was to decide how to handle rebuilding the world after the war. To simplify global transfers of funds, they agreed the US dollar would serve as the designated cross-border reserve currency. This way, central banks could keep fixed exchange rates between their currencies and the dollar.
During the time, the US dollar followed the gold standard. Meaning, every dollar in circulation was backed up by real gold that was stored in a vault managed by the US Federal Reserve.
As a result of the Vietnam War, the US started quietly printing more currency than it maintained in its gold reserves. After many modifications to the Bretton Woods Agreement, President Nixon declared an end to the “gold standard,” in 1973.
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) was founded in Belgium in 1973 as a means to secure cross-border payments, and included agreements between 239 banks across 15 countries. Today, SWIFT is the dominant player and represents 11,000 institutions, over 200 countries, and handles over 35 million cross-border transactions worldwide every day.
The invention of Blockchain technology proved there is a way for individuals to break traditional banking norms. It provided a peer-to-peer digital money solution.
Currently, SWIFT operates with a long line of intermediary players, processing and verifying transactions from bank to bank. This means payments do not truly go through directly. With blockchain, the cost of sending payments becomes practically zero while also removing the need for any corresponding banks to process the transfer.
What once could take up to a week and could be stopped at any point along the transfer, now is sent instantly across borders and is unstoppable. All of a sudden, live payments can happen in a matter of seconds through multiple currencies (fiat or crypto) by adopting this technology.
Though the technology is widely available and many projects are pushing their ideas forward, it is still barely in its infancy. With both a lack of regulations and uncertainty from the general public, it may be a while before it is widely adopted.
Admittedly, blockchain does provide a more cost-effective solution. However, SWIFT and major governments still hold a vast majority of power in the global payments’ market. Therefore, ongoing resistance from these players has effectively limited blockchain’s adoption.
With the current speed of innovation and landscape of “exponential growth,” blockchain could potentially disrupt SWIFT technology. The real question is simply, “how long will it take?”
Will this disruption occur with government-backed blockchains? Could companies rise to power by formulating their own monetary policies and blockchain systems, like Facebook’s Libra or Telegram‘sTON? Or will Bitcoin and other non-profit organizations like Ethereum become the default system of payment?
One thing is for sure, companies, organizations, and governments are beginning to open up to this technology. Eventually, it may be hard to see any entirely centralized authority. The general public might veer away from traditional, centralized institutions altogether. Though it is still too soon to tell, Blockchain could be the solution to leveling the playing field of the global economy.