The fintech industry has been changing rapidly. Digital assets, distributed ledger technology and central bank digital currencies are gaining momentum. Multi-trillion-dollar United States Federal Reserve System money creation has increased demand for digital assets, particularly Bitcoin (BTC).
Banks, brokers, commercial lenders, investment advisors, private investment funds, family offices, mutual funds, fintech entrepreneurs, lawmakers and private citizens should take note of several developments in this space.
Old wine, new bottles
The use of ledgers to track events and transactions is of ancient origin. DLT and blockchain technology combine venerable record-keeping techniques with new technologies — like storing old wine in new bottles.
A primary goal of DLT is the creation of records with entries that must be verified by several, distributed parties in close to “real” time, making forgery much harder to achieve. No trusted intermediary is needed. DLT and blockchain technology differ in some respects. For instance, blockchain technology is generally permissionless or public, whereas DLT is generally permissioned and not publicly accessible. The prospective benefits of implementing DLT and blockchain technology connect many industries and countless applications.
Background on digital assets
Bitcoin and other digital assets, as with gold and other commodities, are goods to which people ascribe value in market transactions. Unlike gold, however, one can send or receive digital assets to or from anyone, anywhere in the world, instantaneously.
The demand for digital assets, such as Bitcoin and CBDCs, including U.S. digital dollars, reflects the changing needs and desires of computer-savvy participants in the 21st-century economy. Only some banks have accounts with the Fed. Digital dollars have the potential to change that by allowing or perhaps requiring companies and individuals to open and maintain Fed accounts.
Congress and the Fed take on digital dollars
Centrist members of Congress, notably Illinois Democrat Bill Foster and Arkansas Republican French Hill, have been prodding the Fed to develop digital dollars. In a letter to Fed Chairman Jay Powell dated Sept. 30, 2019, Foster and Hill posed several pointed questions about digital dollars. They emphasized that “the primacy of the U.S. Dollar could be in long-term jeopardy from wide adoption of digital fiat currencies” and that the “usage of digital assets may well increasingly align with that of paper money in the future.”
Chairman Powell responded on Nov. 19, 2019, that the Fed would continue to consider a CBDC for the U.S. but that the process would take time and careful consideration. He added that the motivations of other countries for pursuing CBDCs, such as the lack of “fast and reliable digital payment systems,” is not particularly relevant to the U.S.
Building momentum for digital dollars
Contra the Fed’s go-slow approach, other financial leaders have been advocating…