According to Rosengren, blockchain isn’t suitable for retail payments since it’s a sluggish technology with a fluctuating asset price.
Based on studies conducted by the Boston Fed and MIT, former President of the Federal Reserve Bank of Boston Eric Rosengren gave some significant insights on what a central bank digital currency (CBDC) may look like.
The Federal Reserve is scheduled to produce a much-anticipated document later this fall that will describe what a U.S. CBDC would look like, but Rosengren gave some interesting insights as to what the American people should expect at a high level.
The “throughput and transaction speed” conditions for a digital currency, according to Rosengren, have been satisfied. Rosengren attempted to divide the ecosystem into three buckets during his remarks: bitcoin, stablecoins, and CBDC, which he referred to as “digital currency.”
According to Rosengren, problems including privacy and security, as well as regulatory requirements from the Board of Governors in Washington, D.C., will certainly reduce throughput and transaction speed.
In a hypothetical US digital currency, Rosengren also stated that blockchain and distributed ledger technology were not included in the design. “It’s less likely that we’ll be designing a digital currency for the blockchain or for a specific blockchain,” Rosengren said.
The work that the Boston Fed and MIT are doing is not, according to Rosengren, based on a blockchain. “In part because we want to have sufficient throughput and speed of transactions,” Rosengren explained,
“the distributed ledger isn’t as effective a mechanism for meeting the kind of operational needs that we think we’ll need.”
The Boston Fed and the MIT Digital Currency Initiative have yet to release their formal findings.
Rosengren resigned from the Fed on September 30, a day earlier than planned due to health concerns, amid a flurry of stories about stock trading disclosures; nevertheless, this was a systemic issue involving others at the Fed, and more is still to come.
According to Rosengren, a central bank digital currency would be used as a retail payment or cash alternative rather than a stablecoin. “You can’t pay for something on the internet with cash,” Rosengren explained, “so digital currency gives you a way to use cash in a digital form.”
Other private-sector initiatives, such as bitcoin and stablecoins, were also disregarded by Rosengren as not fitting the standards for a digital currency in the United States.
“Bitcoin is a relatively slow technology, and the asset price is highly volatile, so I don’t think it’s a particularly good solution for retail payments,” Rosengren said. It’s more of an alternate asset class than a payment method for the general public.”
Rosengren feels that regulation of stablecoins is necessary. In terms of stablecoins’ use, Rosengren believes they will “… likely continue to be a transaction account for people who are trading in and out of various cryptocurrencies, and I believe that role will continue.”
Stablecoins are a fundamentally different payment and settlement mechanism than a digital currency managed by a central bank since they are meant to function on a specific blockchain and are subject to the blockchain’s regulations.”
His conclusion that Bitcoin, stablecoins, and a “digital currency” (CBDC) will all exist in the future was similar to Nik Bhatia’s book “Layed Money.”
Rosengren said that agreement between the Fed, Congress, and the White House is required – and that this would be the most significant delay in the implementation of a CBDC in the United States compared to other concerns.