The U.S. Federal Reserve Experiments Distributed Ledger Technologies For Digital Dollar
The United States central bank - Federal Reserve - has been working towards digitizing the world’s strongest currency U.S. Dollar. In the latest development, the Fed’s board member Lael Brainard said that the central bank has been testing distributed ledger technologies for years.
She further added that the Fed is currently working on a ‘hypothetical’ digital currency focused towards central bank use cases. During her speech last week at the San Francisco branch’s Innovation Office Hours, Brainard revealed the Fed’s DLT progress.
She stressed upon the fact that the economic havoc caused by the Coronavirus pandemic is a stark reminder for creating a trusted, resilient, and accessible payments infrastructure.
In her speech she said: "Given the dollar’s important role, it is essential that the Federal Reserve remain on the frontier of research and policy development regarding CBDC. "The introduction of Bitcoin and the subsequent emergence of stablecoins with potentially global reach, such as Facebook's Libra, have raised fundamental questions about legal and regulatory safeguards, financial stability, and the role of currency in society. This prospect has intensified calls for CBDCs to maintain the sovereign currency as the anchor of the nation's payment systems”.
In a major revelation she added that the Federal Reserve has been conducting in-house experiments for CBDC DLTs and understanding the opportunities and risks associated with it. Besides, the central bank is also studying the implications of having a CBDC on the “payments ecosystem, monetary policy, financial stability, banking and finance, and consumer protection.”
However, she acknowledged the fact that there’s still lot of work remaining as well as making some important changes to the existing restrictive regulations. “Separately, a significant policy process would be required to consider the issuance of a CBDC, along with extensive deliberations and engagement with other parts of the federal government and a broad set of other stakeholders. There are also important legal considerations,” she said.
The regulator has yet to decide if it will undertake any policy changes anytime soon. “To enhance the Federal Reserve’s understanding of digital currencies, the Federal Reserve Bank of Boston is collaborating with researchers at the Massachusetts Institute of Technology in a multiyear effort to build and test a hypothetical digital currency oriented to central bank uses. The research project will explore the use of existing and new technologies as needed,” added Brainard.