Blockchain should not be an enemy of the United States Federal Reserve

Although most central banks are reluctant to turn to blockchain technology, important institutions like the Federal Reserve of the United States should understand the implications of these distributed register technologies and how to adapt to them, the economist Eswar Prasad discussed in a Financial Times article of January 1, 2019.

Blockchain could transform the world of finance

Blockchain has had its best year to date, with both large and small companies competing to find the best use for technology. Eswar Prasad, a professor at Cornell University, emphasized the importance of blockchain in a Financial Times article of January 1, 2019, say which has the potential to transform the world of finance and central banking.

He claimed that central banks, including the US Federal Reserve should understand the implications of the blockchain and how to adapt to them, as they could change the road their monetary policy is managed and guarantees financial stability.

Blockchain could, in theory, solve the problem of central banks & # 39; inefficiencies. The technology could speed up the verification of different phases of a transaction and reduce the fees for national payments. International transactions could be reduced from days to minutes and a group of banks could settle transactions without having to go through a central bank.

The case of blockchain in central banks

However, a cold transition to the blockchain would have left central banks a less important role, Prasad supportedbecause technology would make it more difficult for them to monitor and control both domestic and cross-border financial transactions.

To combat this, some central banks, such as Singapore and Sweden, have put in place plans to issue digital versions of their national currencies to maintain their role in the country's payment systems, The Financial Times he wrote.

Being cheaper and easier to use would make these national cryptocurrencies attractive to the masses, while the reduced costs associated with its production and ease of monitoring would make it feasible for central banks to use them.

"The Fed and other central banks should embrace new financial technologies to build on that trust and use them to make financial markets more efficient and stable", Financial Times he wrote, adding that the main institutions must innovate and adapt to changing financial technologies.

Prasad raised the question of how the stress of the financial market would affect decentralized verification mechanisms imposed by central banks and implied that technology still needed a lot of work before it could be fully implemented.