This posting at the National Law Review is a brief summary of the points covered in a speech by Fed Governor Lael Brainard around the increasing digitalization and decentralization of global finance, along with implications of such trends for the financial system. The speech was given at the Monetary Policy Forum, which is an annual conference that brings together policymakers, leading scholars, and market economists to discuss US monetary policy. Given the high global visibility and growth of cryptos and so forth, especially during the past two years, this is likely considered a critical issue. The use of an e-yuan at the recently completed winter Olympics was likely another motivating factor around the subject matter.
Ms. Brainard highlighted five areas for the FRB as it plans for the future of the financial system:
• The Evolving Digitalization and Decentralization of Finance
• Preparing for the Payment System of the Future
• Financial Stability
• International Considerations
• Technology Research and Experimentation
Most of these points and the positions taken are more or less covered in the recently released Fed ‘discussion paper’ which came from the Board of Governors. So this speech is likely pulled largely from that paper, which solicits open industry commentary for the next couple of months. This discussion paper was followed by interim results of Phase I testing by the Boston Fed and MIT of a digital dollar, which offered two initial technology approaches. More to come but no timeframes indicated.
‘Ms. Brainard argued that the FRB must familiarize itself with new and developing technologies, including the technology underlying the digitization of the financial system. She pointed out that the FRB is currently analyzing how distributed ledger technology and other financial innovations may improve the financial system and emphasized that such research includes “experimentation with stablecoin interoperability and testing of retail payments across multiple distributed payment ledger systems.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group