The U.S. Federal Reserve is actively investigating distributed ledger technologies and how they might be used for digitizing the dollar.


The states experiments on digital
currency
Amidst ebb and flow of virtual currencies, the US Federal Reserve has
been testing DLT past several years to understand the proportionate collision
on the digital currency with the existing payments, ecosystem, monetary policy,
financial stability and banking sector.To understand: DLT is the “decentralized
database managed by multiple participants, across multiple nodes and to such is
an example of Blockchain which is a type of DLT where Transaction are recorded
with an immutable cryptographic signature.
Being
Cognizant of the important issues, the federal Reserve has been vigorously
performing statistically study and experimental research related to distributed ledger technologies and the potential use cases
for digital currencies. The Governor Lael
Brainard opined in the Federal Reserve Bank of San Francisco’s Innovation
Office Hours, that during this dramatic pandemic situation “there need
forimmediate and trusted access to funds”, noting that recipients of emergency
stimulus funds spent them quickly, indicating they urgently needed access.
The COVID19
phase is witnessing an abrupt spending by the Americans which has set a
reminder on the importance of resilient and trustworthy payment infrastructure
for the citizens of the states. Though the phenomenon of digital dollar, as a
tool to distribute emergency stimulus funds is not new. However, no
concrete public efforts have been made to create a blockchain-based central
bank digital currency in the U.S.
To yoke
in the potential benefits of digital dollars 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, confirmed the Governor and the code from these
experiments will be published under an open-source license for the general
public to experiment with it.
Brainard
said the existence of other CBDCs and private cryptocurrencies, like bitcoin and
libra, underscore the need for the U.S. to evaluate cryptocurrencies.“Digital currencies, including central bank digital currencies (CBDCs), present
opportunities but also risks associated with privacy, illicit activity, and
financial stability,” she said. “This prospect has intensified calls for CBDCs
to maintain the sovereign currency as the anchor of the nation’s payment
systems.”
The Governor’s view was a replicate
of the former CFTC (Commodity Futures
Trading Commission) Chairman Chris
Giancarlo, who is now a director with the Digital Dollar Project,
which has called for tokenizing the dollar. Identical to Brainard, latter also opined that digital dollar would benefit the
U.S. both in terms of quickly distributing or transferring funds when needed,
as well as continue to maintain the dollar’s dominance in the global economy.
With
persisting questions on the acceptance and approval of the virtual currencies
Brainard stated: “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,” she said.
“The Federal Reserve has not made a decision whether to undertake such a significant policy process, as we are taking the time and effort to understand the significant implications of digital currencies and CBDCs around the globe.”

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