In the future, the World Bank may shift its focus towards blockchain technology, as indicated by a report that delves into the potential use of tokenization for infrastructural projects.
The 49-pages report highlights the advantages of employing blockchain technology to digitize debt financing procedures for worldwide infrastructure projects. A significant portion of the report concentrates on the World Bank’s utilization of blockchain amidst diminishing funding options, while also acknowledging various obstacles that hinder its widespread implementation.
From the very beginning, the report recognizes two potential ways in which tokenization using blockchain technology can enhance the operations of the World Bank. The first approach involves democratizing funding opportunities by tokenizing infrastructure securities, thereby enabling a broader range of investors to participate, while also reducing the cost and duration of issuance procedures.
The report’s authors also highlight a second application of blockchain technology, as it pertains to enhancing process transparency, particularly in relation to budgeting. Through the utilization of blockchain and smart contracts, the World Bank’s contractors and subcontractors can mitigate disputes by leveraging the unalterable nature of transactions conducted on the blockchain.
According to the report, “Smart contracts allow for the programming and automatic execution of different operational scenarios, ensuring transparent verification of invoices in accordance with the contract terms. This heightened transparency in contract administration reduces the necessity for a full-time contract administrator.”
Although there are multiple advantages linked to tokenization for the World Bank, the report emphasized several obstacles that impede its adoption. The first challenge identified pertains to the absence of a universally accepted tokenized standard, which is further complicated by diverse anti-money laundering (AML) and Know Your Customer (KYC) processes.
In addition to that, there are other challenges related to their utilization, including cybersecurity risks and uncertainties surrounding the legal status of smart contracts and digital tokens. The report acknowledged jurisdictions such as the U.S., Luxembourg, Switzerland, and the European Union for having a solid legal framework in place to facilitate tokenization.
Emerging Markets Bear The Brunt
Based on the report’s findings, the most significant hurdles in implementing tokenization are encountered by emerging markets and developing economies. These challenges arise from the absence of regulatory frameworks and the lack of pilot programs in these regions.
Nevertheless, the authors firmly asserted that emerging markets have the most to gain from tokenization, as it has the potential to enhance confidence in the private sector. Additionally, other advantages include automated auditing, reduced financing costs, and comprehensive project monitoring.
In order to attain these advantages, the report proposes several measures, including the harmonization of regulations across various jurisdictions, capacity building efforts, and an expansion of pilot testing and sandboxing initiatives to gain practical insights.