In an increasingly interconnected world, key financial gateways serve an indispensable role in keeping commerce flowing effortlessly through the arteries of our global financial construct. However, the critical technologies that power these gateways are not only suffering from obsolescence but also from a dearth of capacity to bear this ever-increasing load, as patently demonstrated by a cascading failure at Japan Bankers Association's Payments Clearing Network System a few days back.
For the benefit of those who might not be aware, Japan Bankers Association declared last Tuesday that over 1.4 million domestic bank transfers were disrupted due to "glitches at its payment clearing network system." This event marked the association's first-ever major system failure, affecting 11 banks and leaving around 400,000 transactions unprocessed by the end of the day. What's more, an unspecified number of intra-bank transfers were also affected by this glitch.
FAILURE AT JAPAN BANKERS ASSOCIATION'S PAYMENT CLEARING NETWORK SYSTEM WAS DUE TO LACK OF MEMORY CAPACITY IN EQUIPMENT CONNECTING EACH FINANCIAL INSTITUTION AND THE SYSTEM - NIKKEI
— First Squawk (@FirstSquawk) October 16, 2023
Now, almost a week later, we finally know the culprit. As per an investigation by Japan Bankers Association, the disruption last week was stimulated by a lack of sufficient memory capacity within the servers of Japan's payment clearing system.
As the disruption at Japan Bankers Association demonstrated last week, the global financial system continues to suffer from an overreliance on legacy systems and technology. For instance, the UK's Financial Conduct Authority (FCA) found in 2021 that around one-third of the companies surveyed relied mostly on legacy tech infrastructure. On the whole, 58 percent of surveyed companies relied on legacy tech for some functions.
Of course, it is this precise antiquated financial system construct, reeking to the high heaven of the 20th century, that has buffeted the rise of the crypto sector over the past few years. It is also this perception of a system creaking at its proverbial seams - merited or not - that has been pushing an increasing number of countries to experiment with Central Bank Digital Currencies (CBDCs).
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