The Fed’s announcement of a tentative look at the potential benefits of adopting a true digital dollar continue to have an outsize impact on fintech and the financial industry in general. Despite concerns, such a step would represent a truly seismic shift in the way the world does business, and the steps they take bear a lot of scrutiny in the months and years to come.
And in a realm already fraught with a lot of continuing scrutiny, that’s no simple conversation. Former FDIC Chair Jelena McWilliams said in a February talk before the Bipartisan Policy Center that the study of stablecoins was a high priority:
“My personal view is that generally, bank-issued stablecoins closely resemble digital representation of deposits,” McWilliams said.
The promise isn’t hard to spot for any serious professional, of course; the problem facing federal agencies so far is that they seem to having a hard time moving past simply posing the question.
The Federal Reserve’s January paper on the topic, while a good overview of the basic issues, doesn’t seem to have much to say on what the answers might be to any of the pressing problems that any adoption effort would face. That’s not to say no progress is being made – from a process point of view, the Fed’s partnership with the Digital Currency Initiative at MIT appears to be paying off in terms of the development of new technologies to power such a move.
That technology initiative, dubbed Project Hamilton, is still in theoretical phases, but outlines the notion of a high-performance and resilient transaction processor for a CBDC developed using open source software.
“This collaboration between MIT and our technologists has created a scalable CBDC research model that allows us to learn more about these technologies and the choices that should be considered when designing a CBDC.” Said Boston Fed Executive Vice President and Interim Chief Operating Officer Jim Cunha.
That theoretical platform offers a marriage between blockchain and cryptocurrency technologies with the more robust protections and architecture of traditional payments: a bank that can support cryptographic proofs of payment, and more flexible forms of authorization to spend, while still maintaining the protections expected of traditional finance.
But on the bigger hurdle of policy? So far, the Fed seems to not have much more to offer than a shrug and a suggestion that maybe Congress will provide them with direction.
Almost everyone can agree that more regulatory action on digital currencies is coming, as more and more financial institutions invest and government agencies sit up and take notice. But the shape of that regulation remains, in many cases, frustratingly opaque. Ultimately, for any of this to actually move beyond white papers into a new reality for finance, the policy side of the question is going to have to gain more clarity and catch up with the technology.