The US Federal Reserve is actively researching distributed technology for ledgers and how they can be used to digitize the dollar.
Federal Reserve Board Governor Lael Brainard said the US Federal Reserve has been testing DLT in recent years to study what a digital currency can do to the existing ecosystem of payments, monetary policy, financial stability and the banking sector.
“With these important issues in mind, the Federal Reserve is active in conducting research and experiments related to distributed ledger technologies and the potential uses of digital currencies,” Brainard said Thursday at the Federal Reserve’s Innovation Office Hours Bank of San Francisco.
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Brainard cited the ongoing COVID-19 pandemic as one problem that reinforced the need for “immediate and trusted access to funds,” noting that recipients of emergency stimulus funds spent them quickly, indicating that they needed urgent access.
“The COVID-19 crisis is a dramatic reminder of the importance of an elastic and trusted payment infrastructure that is accessible to all Americans,” she said. “It was noteworthy that after a sharp reduction in spending early in the COVID-19 crisis, many households were increasing their spending, starting on the day they received emergency aid payments.
The idea of a digital dollar as a tool for distributing stimulus funds is not new. Congress has been running the idea since at least March. However, no concrete public efforts have been made to create a blockchain-based central bank digital currency in the US
Experimenting
U.S. lawmakers have in the past asked Federal Reserve Chairman Jerome Powell about the potential benefits of a digital dollar. The regulator said last November that the central bank was “carefully analyzing” the potential benefits if costs.
At the moment, Powell said that the Fed is not actively developing a digital dollar, that it might not offer the same benefits to U.S. consumers as the central bank’s digital currencies of other peoples would offer their citizens, and that there are privacy issues. and consumer protection.
Brainard echoed these questions in her speech Thursday, but her comments indicate that the Fed is furthering in its experimentation than previously confirmed.
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“To enhance the Federal Reserve’s understanding of digital currency, the Boston Federal Reserve Bank is collaborating with researchers at the Massachusetts Institute of Technology in a multi-year effort to build and test a hypothetical digital currency oriented to use central banks, “said Brainard.
The code of these experiments will be published under an open source license for the general public to experiment with.
International efforts
Brainard said the existence of other CBDCs and private cryptocurrencies, such as bitcoin and libra, underscores the US need to evaluate cryptocurrencies.
“Digital currencies, including digital central banks (CBDCs), provide opportunities but also risks associated with privacy, illegal activity and financial stability,” she said. “This perspective has called for CBDCs to intensify to preserve the sovereign currency as the anchor of the nation’s payment systems.”
She also endorsed one country in particular, noting “China has made rapid progress over its version of a CBDC.”
The Fed must “stay on the edge of research and policy development” given the role of the dollar in the world, she said.
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Their views have been revisited in the past by former Commodity Futures Trading Commission (CFTC) Chairman Chris Giancarlo, who is now a director with the Digital Dollar Project, which called the dollar token. Giancarlo has appeared before Congress three times this summer to advocate this approach.
Like Brainard, Giancarlo said that a digital dollar would benefit the US both in terms of rapidly spreading and transferring funds as needed, as well as continuing to maintain the dominance of the dollar in the world economy.
Many questions remain before the US can even consider a CBDC, Brainard said Thursday. They include whether a CBDC issued by the Fed legal tender would be under the law.
“An important policy process would be needed to consider the issuance of a CBDC, along with extensive consultation and involvement with other parts of the federal government and a broad set of other stakeholders,” she said.
“… The Federal Reserve has not made a decision on whether to undertake such an important policy process as we take the time and effort to understand the key implications of digital currencies and CBDCs around the world.”
