Is the Forex Market Ready to Go Blockchain? Some Banks Don't Think So

On July 27, the foreign exchange trading market settlement powerhouse CLS reported it was in the final stages of testing its blockchain payment service for banks.

Given the fact that forex relies on over-the-counter type deals, larger participating players - i.e., international banks - strive to mitigate the settlement risk associated with their forex transactions.

CLS's relationship with blockchain, IBM and R3. CLS is by no means new to the concept of blockchain.

"Based on the CLS-IBM collaboration, it seems most banks will need to readjust their approach to risk in terms of go/no-go decisions, especially in the early phases of a project. As we've learned, organizations can design their first blockchain initiative to avoid significant risks. At CLS, our first decision was not to build a bridge too far or wide. In other words, our first initiative could not be one where failure put our existing business at risk."

CLS and IBM's collaboration has also resulted in the creation of a seperate PoC project called LedgerConnect, a so-called financial blockchain "App store" that showcases DLT solutions crafted by fintech and software companies to help banks navigate through the maze that is blockchain - for conventional business players, at least.

CLS doesn't limit its blockchain operations to collaborating with IBM. The forex giant also works with R3, a blockchain consortium of more than 200 financial firms globally, whose primary goal is building a DLT platform called Corda.

"The folks at IBM Fabric who donated it to Hyperledger are looking to solve a whole set of problems for a much broader set of industries - healthcare, auto financing, supply chain management, finance, etc. - whereas Corda was built specifically for financial institutions and built with the financial institutions[] I think what CLS is doing is the right thing, meaning they are working with multiple different providers; they are involved in Hyperledger work with Fabric, they are involved with the R3 consortium and working on projects that go beyond that."

Do banks want to rely on blockchain for settlement payments?

"The journey has been accelerating. We were building something for the very first time, and we started selling to larger buy-side firms. Some of them are attracted to bleeding edge technology while others would rather stick with existing systems and wait and see. As we talked to banks, we found they are investing in blockchain, but they aren't taking the risk to actually use it. They are investing in multiple blockchain vendors."

Still, CLS might convince the majority of banks to join later through efforts like the above mentioned LedgerConnect and collaborations with organizations like R3 - which gathers different law firms to educate lawyers globally in its efforts to bring about the mass adoption of the technology - steadily pushing global banks to swap their traditional tools with new blockchain ones.