Fed Governor: Blockchain Is a ‘Significant Development’ for Finance

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Fed Governor: Blockchain Is a ‘Significant Development’ for Finance

The Federal Reserve Governor Lael Brainard said the private central bank is looking at blockchain technology.

Also read: Can the Federal Reserve Really Save the US Economy?

The Fed Focuses In On Blockchain

The Federal Reserve has its eye on various blockchain technologies. Governor Lael Brainard spoke to guests at the Institute of International Finance in Washington, D.C. concerning the protocol under the hood of Bitcoin. Brainard detailed the Fed sees the technology as “the most significant development in many years.”

Central banks all across the world have been looking into blockchain technology. In fact earlier this year, a group of blockchain and digital currency advocates spoke to Federal Reserve Chairwoman Janet Yellen. The Chamber of Digital Commerce representatives and guests of central bankers from 90 countries discussed the future of these protocols.    

Brainard says that distributed ledger technology could help cross-border record-keeping. Benefits include lower risks and secure transactions within markets and automated smart contracts. The Governor explained to attendees:

We recognize the potential of distributed ledger technology, or blockchain, to transform the way financial market participants transfer, store, and maintain ownership. At the same time, we want to maintain public confidence.

Governor Says Blockchain Still Needs To Prove Potential

Lael Brainard, Federal Reserve
Lael Brainard, Federal Reserve

Brainard told the crowd that the technology still has to prove itself. This would include protection against data breaches, hacks, and regulatory concerns. “Potential applications are in their infancy, and the industry may still be several years away from an application that is ready to be fully implemented,” said Brainard.

The Governor explained that financial tech is new and therefore incorporates a lot of risks. Later this year the Fed plans on releasing its blockchain research paper by the end of the year. Brainard also detailed many of the scenarios blockchain technology could affect positively within traditional trade finance.

“Initial relatively simple proofs of concept must be followed by much more complex demonstrations in real-world situations before these technologies can be safely deployed in today’s highly interconnected, synchronized and far-reaching financial markets,” he said.

The Research Continues

The Fed has been setting its sights on blockchain technology for quite some time. In March researchers from the New York Federal Reserve issued a report called “Is Bitcoin Really Frictionless?” The paper described the many spot ranges in value between three leading Bitcoin exchanges. The report concluded blockchain technology was impressive, but the cryptocurrency Bitcoin wasn’t really frictionless.

Some believe the Fed will someday issue its own centralized digital currency. Indeed, the notion of a ‘Fedcoin’ has been talked about by other central banks around the world. Whatever the case, maybe the private organization is very keen on learning about this emerging technology. Top executives within the Federal Reserve show they are dedicated to this research.

What do you think about the Federal Reserve Governor Lael Brainard’s commentary? Let us know in the comments below.

Source: Reuters

Images via Shutterstock, an Pixabay.

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