Federal Reserve Board explores distributed ledger technology’s potential
Distributed ledger technology has the potential to provide new ways to transfer and record the ownership of digital assets in addition to other functions, according to a recently released paper by the Federal Reserve Board.
This paper, “Distributed ledger technology in payments, clearing, and settlement,” examines how DLT can be used in the areas of payments, clearing and settlement, and identifies both the opportunities and challenges facing its long-term implementation and adoption.
In the context of payments, DLT can provide new ways to transfer and record the ownership of digital assets. It can also immutably and securely store information, provide for identity management, and perform other evolving operations.
Potential use cases in payments, clearing and settlement include cross-border payments and the post-trade clearing and settlement of securities.
The use cases could address operational and financial frictions around existing services.The industry’s understanding and application of this technology is still in its infancy, and stakeholders are taking a variety of approaches toward its development.
Given the technology’s early stage, a number of challenges to development and adoption remain, including issues around business cases, technological hurdles, legal considerations and risk management considerations.
As a recent innovation, DLT has the potential to also drive change to the financial market structure in ways that take advantage of the new technology. Although it is too soon to predict what these changes may be, the way the industry finds use cases and addresses the challenges identified in the paper will provide clarity over time.