Fed's Brainard sees blockchain as
revolutionary, but still to prove itself
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[October 08, 2016]
WASHINGTON (Reuters) - The
technology behind the controversial bitcoin electronic currency could
lead to sweeping improvements in how financial transactions are carried
out worldwide, Federal Reserve Governor Lael Brainard said on Friday.
But only if it can be safeguarded from hackers and terrorists, and not
grind to a halt in a crisis.
Those assurances may still be years away, Brainard said, though the Fed
is closely tracking the evolution of so-called blockchain systems, and
sees it as "the most significant development in many years" in how
financial assets trade hands.
"We recognize the potential of distributed ledger technology, or
blockchain, to transform the way financial market participants transfer,
store, and maintain ownership," Brainard said at the Institute of
International Finance annual meeting. At the same time, "we want to
maintain public confidence."
The Fed along with major central and commercial banks around the world
are grappling with how blockchain may reshape the financial system. The
technology in theory could lower the cost, improve the security and
speed the completion of transactions by eliminating intermediaries. It
would instead rely on cryptography and computer algorithms to transfer
electronic records across a shared ledger.
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Brainard said common ledgers could simplify the complicated cross-border
record keeping involved in trade finance, lower counterparty risk in
securities transactions, or even automatically enforce bond payment or
other contracts.
The downside: it would need to prove itself immune to hacking or other
security breaches, use by criminal organizations, and show that it could
improve - or at least not damage - financial stability.
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![](../images/100816pics/news_u31.jpg)
Federal Reserve Governor Lael Brainard delivers remarks on "Coming
of Age in the Great Recession" at the Federal Reserve's ninth
biennial Community Development Research Conference focusing on
economic mobility in Washington, DC, U.S. on April 2, 2015.
REUTERS/Yuri Gripas/File Photo
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"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," said Brainard.
The Fed expects to release a research paper on the technology later
this year.
"Initial relatively simple proofs of concept must be followed by
much more complex demonstrations in real-world situations before
these technologies can be safely deployed in today’s highly
interconnected, synchronized, and far-reaching financial markets."
(Reporting by Howard Schneider; Editing by Chizu Nomiyama)
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