[jhallenworld]

The example clarifies my feeling about blockchain: How would the example provided (avoiding the clearing house) work without the banks accepting something like a mining-backed crypto-currency like bitcoin?

With bitcoins, there is no possibility for dispute: bank A gives bank B the money during the transfer.

Any other scheme involves a promise (a legal contract), so you will not know for sure that bank A really had the money to give to bank B. The solutions to this are all in use today:

(1) Bank A previously gave B money (they have a correspondence account in B). So the transfer is really between accounts at bank B.

(2) Bank A gives bank B physical money.

(3) Bank A transfers money to B between accounts at some other bank (or the fed). It means A had money in the other bank to begin with.

(4) Bank B gives credit to bank A (i.e., Bank B trusts Bank A) and accepts IOUs from them. The banks could cancel out each others IOUs. The IOUs become new money. This used to be done in the old days, but the basis for trust was each bank's gold reserves.

[gbarc888]

In scenario (4), they're bank-backed crypto-currencies. Banks are trying to build their own settlement coins: http://www.coindesk.com/utilities-settlement-all-about-banks...

[bachback]

other approach is issued ColoredCoin by banks - Lykke.com does this. then you get pricing of assets. fiat money are already "settlement coins", the question is about liquidity, risk and openness.