BitOoda Regulatory Analysis, 8/17/20: Jumpstarting the Digital Dollar

As China announces a major expansion of testing for its digital currency pilot program, the U.S. Federal Reserve burst forward with a series of speeches, announcements, and publications that revealed a number of its own digital currency initiatives, including a new partnership with MIT. Crypto news outlets are understandably looking back at the past few months of statements by Fed Chair Jerome Powell to tease out previous indications that the Fed had actually launched exploratory efforts into a Digital Dollar, but it appears to us that the Fed chose to keep a close hold on details of its projects in the CBDC space until now.

· The Boston Fed and MIT’s Digital Currency Initiative have established a partnership to “explore the use of existing and new technologies to build and test a hypothetical digital currency platform.” They stated the project will be two-to-three years in duration.

· In addition, the Federal Reserve Board of Governors announced that the Fed’s Technology Lab is expanding its experimentation with digital currency and other payment innovations, stating “Technological innovations inspire new ways to think about money.” It also revealed that the Fed is collaborating with other central banks and international organizations to better understand CBDCs.

· Fed Governor Lael Brainard, who has clearly emerged as the organization’s digital currency focal point, delivered a speech that reviewed the Fed’s ongoing activities and the broader policy context, stating “the Federal Reserve is active in conducting research and experimentation related to distributed ledger technologies and the potential use cases for digital currencies.” She also acknowledged China’s progress on its CBDC initiative, as well as the importance of maintaining the dollar’s role in the global economy — issues we at BitOoda have discussed frequently this year.

· The Fed released a paper assessing the potential benefits of a CBDC compared to existing payment systems, assessing that “benefits could include a digital form of a bearer instrument, more cost-effective payment services, greater anonymity than current digital transactions, and a catalyst for greater innovation through programmable money.”

· Lastly, the Fed revealed that it conducted a small-scale experiment in 2019 to build a DLT-based payment system using Hyperledger Fabric, which “highlighted the potential of DLT for certain payment uses, the quick speed with which a system could be implemented, the potential simplicity of smart contracts, and the range of functionality offered by such platforms.”

While Brainard and others are quick to point out that “a significant policy process would be required to consider the issuance of a CBDC… and the Federal Reserve has not made a decision whether to undertake such a significant policy process,” we applaud the Fed’s decision not only to commence a more tangible effort to develop a CBDC infrastructure, but also to publicize the work it has been doing behind the scenes to plan for a potential Digital Dollar.

As we at BitOoda continue to build a more sophisticated market with our growing suite of fully-compliant structured products and client-focused strategies, we look forward to the expansion of the crypto ecosystem through the introduction of a Digital Dollar that will spur widespread adoption, new investment opportunities, and the broader growth of the increasingly-digital mainstream economy.