Is central bank digital currency the trend? The Federal Reserve said it is not considering issuing 'FedCoin'

The idea of ​​issuing digital fiat currencies using blockchain is not new — in fact, financial regulators in many countries, including the UK and China, are beginning to consider its feasibility.

As for how this concept can be used in the U.S. market, Jim Cunha, senior vice president of treasury and financial services at the Federal Reserve's Boston branch, believes that this technology has a better chance of development in the banking industry.

I wouldn’t say central bank (digital) currency is an easy goal to achieve.

Cunha was speaking at the Business of Blockchain conference, hosted by MIT Technology Review and the MIT Media Lab.

Cunha went on to say that while blockchain technology could improve efficiency, there are still a multitude of technical and legal issues that need to be addressed first, one of which is the “closing” issue, which he considers the “holy grail” of the financial services industry.

Cunha told attendees:

Electronic transfers are irreversible. The Fed can never reverse a transaction. Banks count on this. This is why when you get a mortgage, your lawyer has to wait until the bank says the money has been sent to them. Because they need to prove that the house is yours when they sign the deed.

He used the example of The DAO hard fork to illustrate that the decision to decentralize blockchain is likely to cause a lot of problems for banks.

Imagine if all the banks came together and said that if more than 51% of people decided to cancel a remittance, then they would cancel it. What would the consequences be?

The Fed official also cited other issues, including the impact of blockchain on trust and risk models in currencies. Because distributed ledgers typically cut out middlemen, banks would have to adopt a completely different legal structure.

He said:

This is a big project and it is very complex.

Identify the problem

The current blockchain hype problem is quite serious. Cunha said that blockchain research is not just about finding solutions. First, you have to take a step back and find out the crux of the problem.

He said:

A lot of people are eager to move forward, simply because this is digital currency, this is the big thing that drives the paperless future because paper is obsolete. But what exactly is the problem we are trying to solve?

In his view, "the money supply of the world's largest economic system" is not the beginning of solving the problem.

On the contrary, Cunha believes that stocks, derivatives, trade agreements, etc. are the best application areas for blockchain, which can reduce friction and lower costs.

No plans to issue a ‘FedCoin’

Cunha also dispelled rumors about FedCoin, a hypothetical digital fiat currency that was mentioned in a 2015 paper published by an economist at the Federal Reserve’s St. Louis branch.

Now I can tell you straight away that we have no plans to issue FedCoin at any specific time.

However, Robleh Ali, a researcher at the MIT digital currency project who was also a member of the Bank of England, said that different central banks will make different decisions.

Ali said that digital fiat currency can be developed outside the banking system, and when the technology matures, it will be adopted by banks. This situation is absolutely foreseeable.

I think ultimately digital fiat currencies will become the foundation of the financial system.

He concluded:

In 20 or 30 years you'll be discussing this topic frequently.