How Blockchain Technology Could Improve Transparency and Reduce Corruption in the Banking System

Abstract

Corruption and transparency: Corruption and absence of transparency have been thorny issues in the banking systems especially in the developing and fragile economies where the inadequacy of the institutions and the absence of supervision erode the public confidence and sustainability of the financial systems. A new digital technology called blockchain has come up and has the potential to solve such problems by radically transforming the way records of financial transactions are stored, checked, and tracked. This paper will discuss how blockchain technology can enhance transparency and curb corruption in the banking system through its centralized properties of decentralization, immutability and distributed consensus. The paper based on the applicable theoretical frameworks, such as Principal–Agency Theory and institutional governance theories, examines why and how blockchain can help curb discretionary authority, increase audit trail, improve regulatory supervision, and curtail fraud and embezzlement, insider abuse opportunities. There is a special focus on the situation in the developing and conflict-prone banking systems, and it is illustrated by the Democratic Republic of the Congo, where money dependency, poor supervision, and low confidence of the population contribute to the risks of corruption. The paper goes further to describe how blockchains are used in practice, including distributed ledgers, smart contracts, and blockchain-enabled KYC and AML systems, and as well as discusses challenges in implementing blockchains, in terms of infrastructure, regulation, and capacity building. On the whole, the research can add to the scholarly and policy discussion about financial governance by showing how blockchain innovation can yield transparency, accountability, and trust restoration in the banking sector and stating the way to introduce it in a responsible and context-aware way.