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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