LIBOR is being replaced by SONIA, what role can AI and Smart Contracts fulfil?
2 min video considering the transition from scandal ridden LIBOR and the role for AI and Blockchain Technology
There were grave concerns and allegations about the scandal surrounding how the London Inter Bank Offered rate (LIBOR) was being calculated. This had led to LIBOR going to be replaced Sterling Overnight Index Average (SONIA). This is in effect the interest rate payable paid by banks for unsecured transactions in the British sterling market. At the beginning of June the Financial Markets Standards Board have released their first of a series of reports focused on LIBOR transition case studies to help companies as the market moves from LIBOR to SONIA
AI could help identify and then Blockchain technology’s Smart contracts could help in the transition as the global financial system has to alter millions of contract terms from LIBOR (discredited after 2008 crisis due to fixing allegations) to SONIA by end of 2021. As of Aug 2019 were $25 trillion worth of contracts that referenced LIBOR on London Clearing House, globally the value of contracts that reference LIBOR is $340 trillion. This transition is not only going to take time, which is why the deadline for implementation of SONIA is not until the end of 2021, but it is going to be costly. To give an idea PPI cost UK banks £43 billion, it is estimated the transition cost from LIBOR to SONIA will be $1.2 billion.
Will this spur the derivates market which according to the Bank International Settlement is $603 trillion in size to further embrace Blockchain technology and thus we will see more derivatives being issued in a digital/ tokenised format?
#Blockchain #LIBO #Economy #Banking #Regulation #Money #Interestrates #trust #City #SONIA
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