Federal Reserve Support Of Blockchain Technology
During a recent visit to Boise State University’s economics and finance students, San Francisco Federal Reserve President, John Williams, noted that blockchain technology could help lower costs and make record keeping easier and more efficient. In addition, Williams highlighted that people are beginning to gain a general understanding that digital currencies will not replace government-issued currencies like the US dollar. Williams’ comments come after recent remarks and actions taken by the US Federal Reserve that have pricked up the ears of blockchain technology advocates in the US financial sector.
In 2016, a US Federal Reserve research team consisting of multidisciplinary staff members conducted interviews and held discussions with 30 key financial industry stakeholders, including government agencies, tech start-ups, and other financial conglomerates, to discuss possible applications for Distributed Ledger Technology (DLT). As a result of their findings, the Federal Reserve published a research paper in December of 2016, titled: “Distributed ledger technology in payments, clearing, and settlement.” The paper highlights DLT as a digital innovation that could potentially transform payment processes and commodity markets in the US financial sector.
As per the paper, “The driving force behind efforts to develop and deploy DLT in payments, clearing, and settlement is an expectation that the technology could reduce or even eliminate operational and financial inefficiencies, or other frictions, that exist for current methods of storing, recording, and transferring digital assets throughout financial markets.”
Furthermore, on January 18, 2017, US Federal Reserve Chair, Janet Yellen, made several statements following her speech on “The Goals of Monetary Policy and How We Pursue Them,” which included her belief that blockchain could be a major industry disruptor as “a technology that enables transactions and ownership of things to be taken care of automatically, without a need, for example, for a trusted central party to record transactions. So, it is very important new technology that could have implications for the way in which transactions are handled throughout the financial system.”
However, Yellen admits that the idea of the US going cashless is not something that’s currently in high demand:
“The demand and use of cash continues to increase, but there are many important innovations taking place in the payment space. Fintech innovations that I think are very exciting in terms of resulting in faster, safer payments not only at the wholesale but also at the retail level that could change the use of cash overtime…We are monitoring those developments very carefully.”
Despite advocacy, the US Federal Reserve sees mass adoption of DLT as something that’s still years away. The 2016 paper goes on to say:
“Given the technology’s early stage, a number of challenges to development and adoption remain, including in how issues around business cases, technological hurdles, legal considerations, and risk management considerations are addressed.”
The Fed’s paper references technology research firm Gartner. Despite the research firm’s view of the blockchain as a key technological trend that could revolutionize the concepts of how ecosystem enabled platforms will be defined and used, it estimates that blockchain technology won’t be able to deliver a high degree of competitive advantage for at least five to 10 years.