August 13th, 2020, Lael Brainard, the governor of the US Federal Reserve Board gave a speech on digital currencies via a webcast. In her speech, she identified the impact of the COVID 19 pandemic on the finances of Americans. Spending had declined at the start of the pandemic and a sharp rise was experienced when relief funds were sent to people. The challenge then became finding new and smart remittance technology that will obscure waiting days for checks to clear.
The board has been conducting researches relating to Distributed Ledger Technology to discover its potentials. The Federal Reserve Bank of Boston in association with Massachusetts Institute of Technology (MIT) will, according to her, make efforts to build and test a hypothetical digital currency oriented to bank uses:
“To enhance the Federal Reserve’s understanding of digital currencies, the Federal Reserve Bank of Boston is collaborating with researchers at the Massachusetts Institute of Technology in a multiyear effort to build and test a hypothetical digital currency oriented to central bank uses. The research project will explore the use of existing and new technologies as needed. Lessons from this collaboration will be published, and any codebase that is developed through this effort will be offered as open-source software for anyone to use for experimentation.”
She also stated that there is a need for collaborations with and learning from other central banks on issuing a Central Bank Digital Currency (CBDC). This is because a hack on any CBDC could create “domestic financial stress”.
Digibyte founder- Jared Tate in a tweet thread, while reacting and giving his own opinion about this speech, opined that the Federal Reserve should consider using existing and proven Blockchain technologies instead of seeking to create a completely new tech model:
“Instead of creating a brand new protocol/ currency its best to use existing/ proven blockchain crypto assets & networks w/ scarce/ finite properties such as #Bitcoin #Litecoin #DigiByte to back a new type of fiat crypto. Like gold backing but with digital crypto gold.”
He stated that a collection of blockchains should be used to create a Crypto Reserve Fiat (CRF) because no single blockchain can “could handle all the world’s transactions w/ out introducing some serious security & data risks.”
Another point of view of this matter is that, even if the Federal Reserve of any country is able to create a separate blockchain to suit the need for CBDC, the nodes handling transactions/ or data will most likely be location centralized. It is reasonable to think that a CBDC node will not be entrusted to anybody outside the country. This, thus, somehow defeats the reason for decentralization.
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