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US Fed explores blockchain use cases with industry participants
The Federal Reserve has established a working group that is exploring financial innovation across the broad range of its responsibilities and engaging with industry stakeholders to discuss the ways in which the payment system could be improved considering the new wave of innovation including distributed ledger technology.
This was revealed by Governor Lael Brainard at the Institute of International Finance Annual Meeting Panel on Blockchain, Washington, D.C. on October 7, 2016.
“We are paying close attention to distributed ledger technology, or blockchain, recognizing this may represent the most significant development in many years in payments, clearing, and settlement”, Brainard said.
She further mentioned the various blockchain use cases that have been discussed with industry stakeholders, which includes cross-border payments and trade finance, securities markets, commodities and derivatives and more. Brainard said that in markets that are heavily paper-based and lack any central means for coordination, DLT could potentially be leveraged to provide coordination that facilitates exchange, clearing, and settlement of obligations. However, much of the industry is at a "proof of concept" stage of development, she said, adding:
“Many 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”.
Emphasizing on the need for the industry participants to collaborate, Brainard said that in the forthcoming months and years, innovators, investors, and financial practitioners will make important strides in addressing key challenges and evolving distributed ledgers, improving scalability and computational throughput, and improving cryptographic security. She said that the Federal Reserve will monitor these positive developments closely.
Speaking of risks, Brainard said that as with many new financial technologies, distributed ledgers could ameliorate or exacerbate traditional financial risks. She said that robust security is an important element of any system and highlighted the importance of advances in cryptography to enable widespread adoption of DLTs.
In addition, she also pointed out that users and administrators of DLTs should also be able to meet their responsibilities to combat money laundering, terrorist financing, and other key law enforcement concerns.
Brainard concluded saying: “At the Federal Reserve, we expect to publish a research paper later this year that summarizes some of the key findings from our industry engagement so far. Going forward, we will continue to deepen our engagement with a range of financial institutions, technologists, multi-stakeholder consortia, and academic experts to refine our understanding of the new technologies, along with their possibilities and limitations, with a particular focus on our responsibilities for the payments system, as well as our oversight of financial market intermediaries.”