Jim Cunha, senior vice president of the Federal Reserve Bank of Boston, thinks distributed ledger technology (DLT) will have major implications on the U.S. payment system, in addition to financial regulations and cybersecurity. The Boston Fed posted Cunha’s comments on its website.
A 33-year Fed veteran, Cunha said DLT can fundamentally change many areas of financial services, including payments. Other areas of change will include sales and post-trade processing of securities, including trade finance, supply chain and derivatives.
Experimentation Mostly Outside U.S.
Most of the experimentation to date has been done in interbank settlement and cross-border activity, Cunha said. And because most of the activity is happening outside the U.S., there is potential for change in the U.S.
There are currently production applications in the cross-border space, he said, but experiments and research are only taking place in the interbank settlements area.
The Boston Fed has already worked on new payment technology, including original research and development in check imaging technology, which is the chip-based prepaid card the Fed has provided to the U.S. military, he noted. The Fed has also participated in the Mobile Payment Industry Working Group, through which it has examined e-money, cryptocurrencies and DLT.
“Broadly, we want to understand how it can impact the payment industry since our mission is to ensure the efficiency, safety, and accessibility of payments in the U.S.—and to see if it is a technology that we should employ in our own systems,” he said.
Many institutions are experimenting with DLT, he said, so the Boston Fed needs to assess the pros and cons of the technology and ensure that the institutions are doing the same.
Numerous Technologies Emerging
DLT is one of several technologies changing the financial landscape, Cunha said. There are other interesting areas impacting financial services, he said, such as artificial intelligence, machine learning, natural language processing, data analytics and robotics, which include both software automation of processes and physical robots.
When combining these technologies with new chip technology, innovations such as the Internet of Things emerges. While the technologies are interesting, the greater challenge is to find the proper business cases and demonstrate the technology can work in an efficient and effective manner.