In a report released earlier today, the Official Monetary and Financial Institutions Forum (OMFIF) has put forward that using blockchain technology to develop a public finance management system could be extremely beneficial for countries.
The organisation is an independent global think tank for central banking and economic policy that has previously worked extensively with blockchain and digital assets via its Digital Monetary Institute.
The OMFIF report discussing the modernizing of public finance management through blockchain technology explains that such a system could offer government officials the necessary information to formulate and design fiscal policy.
The report particularly highlighted how blockchain technology can help prevent embezzlement and misuse of funds. This could be a particularly game-changing feature considering the rise in cases of fraud, ransomware and cybersecurity attacks worldwide.
Further, with the increasing interest in central bank digital currencies across the globe, a blockchain-led public finance system could, according to the report, clarify “the government’s financial position.”
However, while a digital currency would work effectively with the system, it is not a necessity the report stated:
“Many of the benefits can be achieved without changing payments rails, simply by improving the [public finance management] architecture. Governments would also be more effective at efficiently managing their cash and forecasting their future cash position.”
Explaining how blockchain can facilitate fraud prevention, the think tank stated that the system could combat invoice fraud by allowing users to complete payments with the click of a button without using personal information. It would also enable transparency and traceability for government spending.
Commenting within the report, multinational professional services partnership Ernst & Young Global stated that blockchain can reduce the administrative effort associated with financial reconciliations, tracking and reporting public financial obligations.
“Business terms or eligibility and compliance rules can be embedded into the system to automate transaction controls via smart contracts. Automated tracking and reporting can significantly reduce the cost for partners interacting with government,” the consulting, assurance, tax and transaction services provider concluded.