IBM is working on adopting bitcoin technology for traditional currencies. Reuters

IBM is seeking to create a digital cash and payment system for traditional currencies that uses the underlying technology behind bitcoin, known as "blockchain".

The tech giant's objective is to allow people to transfer cash or make payments instantaneously, through the proposed digital currency system, cutting out intermediaries like a bank or a clearing party and saving transaction costs, Reuters reported.

Blockchain - a ledger, or list of a digital currency's transactions - is viewed as bitcoin's main technological innovation, allowing users to make payments anonymously, instantly and without government regulation.

Rather than stored on a separate server and controlled by an individual, company, or bank, the ledger is open and accessible to all participants in the bitcoin network.

IBM's proposed system will work in a similar way.

The proposal

Instead of having ledgers maintained by banks that record an individual's transactions, an open ledger will be viewable by everyone using the system, and will use an agreed-upon process for entering transactions into the system.

According to plans, IBM's digital currency could be linked to a person's bank account, possibly using a wallet software that will integrate that account with the proposed digital currency ledger.

Unlike bitcoin, where the network is decentralised and there is no supervisor, the proposed digital currency system will be controlled by central banks, the news agency quoted an unnamed source as saying.

Work in progress

The project is still in the early stages, the source said. It is also unclear how concerns about money-laundering and criminal activities will be addressed.

IBM has also been in informal discussions about a blockchain-tied cash system with a number of central banks, including the US Federal Reserve, the source added. If central banks approve the concept, IBM will build the secure and scalable infrastructure needed for the project.

Pursued by Reuters, IBM did not respond to emails seeking comment while the US central bank refused to comment.

The source said: "It's the same money, just not a dollar bill with a serial number on it, but a token that sits on this blockchain."

"When somebody wants to transact in the system, instead of you trying to acquire a bitcoin, you simply say, here are some US dollars.

"It's sort of a bitcoin but without the bitcoin."

There are indications that central banks are thinking about innovations that could arise from digital currency systems.

Last September, a Bank of England (BoE) report described the blockchain's open ledger as a "significant innovation" that could transform the financial system more generally.

Bitcoin was launched six years ago.