Federal Reserve Board Governor Lael Brainar Advises Regulators to Take Blockchain Seriously

Rage Review : Federal Reserve Board member Lael Brainard believes that blockchain technology and distributed ledgers can affect the U.S. financial market. The interoperability of distributed ledgers is critical to other versions of technology and legacy systems, as well as those who maintain access to databases. When it is determined that its security and integrity are in the public interest, regulatory policies need to be appropriately adjusted. Blockchain technology and its applications need to undergo a continuous and repeated evaluation process, and technology itself is not capable of solving industry problems.

Translation: Nicole

Federal Reserve Board Governor Lael Brainard gave his latest speech this week on how blockchain technology and distributed ledgers may impact U.S. financial markets.

Speaking at a blockchain roundtable hosted by the Institute of International Finance, Brainard praised the nascent technology while also noting the need to be careful not to undermine confidence in financial markets as the industry explores blockchain’s potential.

Lael Brainard

Brainard offered some encouragement and caution to regulators, who she said have a responsibility to help maintain a balance between public and private interests.

Brainard said:

“Through constructive and timely engagement by regulators, we seek to analyze the significance of technological developments. We should be mindful of the potential benefits of these emerging technologies and make appropriate adjustments to regulatory policies when we determine that their safety and integrity are in the public interest.”

In her speech, the former U.S. Treasury Under Secretary for International Affairs noted the increasing number of blockchain experiments and mentioned what she sees as the main challenges and considerations facing blockchain development and large-scale deployment.

For example, Brainard said the interoperability of distributed ledgers is critical for other versions of the technology and legacy systems, as well as for those who maintain access to the database.

She said:

"While they are intended to solve problems that arose from isolated operations on the day, the new and highly decentralized 'shared systems' may lead to unintended consequences."

Brainard concluded by revealing that the Federal Reserve will continue to attempt to address concerns from industry stakeholders and regulatory peers as it develops blockchain technology.

Comments followed the speech from regulators both domestically and internationally, who have increasingly expressed their views on blockchain technology and its adoption. In recent weeks, both the U.S. Commodity Futures Trading Commission (CFTC) and Japan’s Financial Services Agency (FCA) have made important statements.

Brainard’s speech came more than two years after Federal Reserve Chairwoman Janet Yellen said the U.S. central bank had no right to overstep its authority over Bitcoin, citing the internet as the longest-lasting example of blockchain technology.

Reasons for optimism

Despite the caveats, Brainard did not sound accusatory during her remarks, adding that she believes the financial industry and regulators should remain optimistic about the positive impacts of emerging technologies.

For example, she said any change to the financial system should not be seen as bringing greater risk, and computerized bookkeeping might once have been considered a "technologist's pipe dream."

Brainard particularly praised blockchain technology’s innovative peer-to-peer (P2P) networking and data storage, encryption and consensus algorithms.

Now she still says blockchain technology and its applications need to go through a continuous iterative evaluation process, mentioning that the technology itself does not have the ability to solve industry problems.

She concluded:

“A lot will depend on the blockchain technology itself, its scalability, maturity, the environment and controls surrounding it, standards and access to transaction data, the quality of management and governance, and the policy environment in which it is deployed.”