General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
May 15, 2018

The FED Governor Lael Brainard emphasized that FED will continue to evaluate developments in fintech and digital currencies through a multidisciplinary lens, while speaking at the Decoding Digital Currency Conference in San Francisco. FED is combining information technology and policy analysis to study the potential implications of digital currencies and blockchain for payments policy, supervision and regulation, financial stability, monetary policy, and the provision of financial services.

Giving the example of bitcoin, he established the inappropriateness of cryptocurrencies (owing to their volatile nature) to fulfill the classic functions of money. Cryptocurrencies pose challenges associated with speculative dynamics, investor and consumer protection, and money-laundering risks. These issues mainly result from the lack of a strong governance and questions about the applicable legal framework for some cryptocurrencies. Owing to their limited use, cryptocurrencies do not currently pose a threat to financial stability. However, if they were to achieve wide-scale use, the effects could be broader. To address the challenges posed by cryptocurrencies, advocates suggest that central banks should create their own digital forms of currency. Although central bank digital currencies may be able to overcome some of the particular vulnerabilities that cryptocurrencies face, they too have significant challenges related to cybersecurity, money laundering, and the retail financial system. No compelling evidence has demonstrated the need for a FED-issued digital currency, said the FED Governor. A multiplicity of mechanisms—including electronically used debit and credit cards, payment applications, and the automated clearinghouse network—are likely to be available for American consumers to make payments electronically in real time. Thus, it is not obvious what additional value a FED-issued digital currency would provide over and above these options, added Mr. Brainard.

He also discussed the potential of the underlying distributed ledger technology (DLT) for strengthening traditional financial instruments and markets. The financial industry is making steady progress in this area, as some projects could be live in some form this year. Many of the use cases focus on the areas of post-trade clearing and settlement of securities transactions, cross-border payments solutions, and trade finance. The common thread running through these use cases is the presence of operational "pain points" that generate inefficiencies and delays for users and raise concerns about the confidentiality of transactional information. The industry must develop distributed ledgers that adhere to laws, regulations, and policies that protect important information of the parties and their customers, added Mr Brainard. The industry has been working on approaches to help address concerns related to the loose governance around the maintenance, security, and reliability of the technology for cryptocurrencies. Some of these approaches involve encrypting data on the ledger so that the ledgers can still be copied across all the nodes in the network, but an entity cannot look at any element of that ledger except for transactions in which it has been involved. Other approaches include zero-knowledge proofs or ring signatures that allow entities to validate transactions without seeing confidential information. Still others are looking at platforms that connect multiple ledgers rather than having one ledger that is copied across all nodes in the network.

While questions remain about the usefulness and viability of each of these approaches, it is important to underscore that preserving confidentiality is an important area of research. Although the governance arrangements may need to evolve over time, one thing that is clear is that strong governance arrangements will be required to provide the coordinated operational and financial risk management for the critical clearing and settlement operations that underpin the financial markets. One challenge going forward will be to understand the implications that the confidentiality tools and different approaches to consensus under consideration may have on the resilience of the distributed ledger. Given that resiliency is a key potential benefit of DLT over existing platforms, it is critical to understand the trade-offs between resiliency and a consensus method that focuses on operational speed, or between resilience and confidentiality. He concluded that FED is "dedicated to continuing to monitor industry developments and conduct research in these vital areas. I remain optimistic that the financial sector will find valuable ways to employ distributed ledger technology in the area of payments, clearing, and settlement in coming years."


Related Link: Speech

Keywords: Americas, US, Banking, Securities, Fintech, Regtech, Virtual Currencies, Crptocurrencies, DLT, FED

Related Insights

FSB Report Examines Financial Stability Implications of Fintech

FSB published a report that assesses fintech-related market developments and their potential implications for financial stability.

February 14, 2019 WebPage Regulatory News

US Agencies Amend Regulatory Capital Rule to Allow Phase-In for CECL

US Agencies (FDIC, FED, and OCC) adopted the final rule to address changes to credit loss accounting under the U.S. generally accepted accounting principles; this includes banking organizations’ implementation of the current expected credit losses (CECL) methodology.

February 14, 2019 WebPage Regulatory News

OCC Consults on Company-Run Stress Test Requirements for Banks

OCC proposed amendments to its company-run stress testing requirements for national banks and Federal savings associations, consistent with section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act.

February 12, 2019 WebPage Regulatory News

CFTC Extends Comment Periods for Trade Execution Requirement Proposals

CFTC announced that it is extending comment period for the proposed amendments related to the regulations on swap execution facilities (SEF) and trade execution requirement.

February 12, 2019 WebPage Regulatory News

OCC Proposes to Renew Information Collection Under Stress Test Rule

OCC is proposing to renew its information collection titled “Annual Stress Test Rule” (OMB Control No: 1557-0311). Comments must be received on or before March 13, 2019.

February 11, 2019 WebPage Regulatory News

OSFI Consults on NSFR Disclosure Requirements for D-SIBs

OSFI proposed the draft guideline on the net stable funding ratio (NSFR) disclosure requirements for domestic systemically important banks (D-SIBs).

February 11, 2019 WebPage Regulatory News

EC Amends Its Regulation to Clarify Impairment Requirements for IFRS 9

EC published the EU Regulation 2019/237 that amends Regulation (EC) No 1126/2008 adopting certain international accounting standards, in accordance with Regulation (EC) No 1606/2002 regarding International Accounting Standard (IAS) 28 on Investments in Associates and Joint Ventures.

February 11, 2019 WebPage Regulatory News

FSB Chair Randal Quarles Speaks About the Upcoming Work of FSB

While speaking at the BIS Special Governors Meeting in Hong Kong, Randal K. Quarles, the Chair of FSB and Vice Chair of FED, discussed his views on how the work of FSB must evolve and the key principles that, he believes, should inform that work.

February 10, 2019 WebPage Regulatory News

OSFI Proposes to Amend the Liquidity Adequacy Requirements for Banks

OSFI proposed revisions to the Liquidity Adequacy Requirements (LAR) Guideline for banks. OSFI published the proposed drafts (with proposed changes highlighted in yellow) of Chapters 1,2, 4, and 5 of the LAR guideline.

February 08, 2019 WebPage Regulatory News

HKMA Publishes FAQs on Local Implementation of IRRBB Framework

HKMA published the frequently asked questions (FAQs) related to the local implementation of the interest rate risk in the banking book (IRRBB).

February 08, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2593