3Qs with Jim Cunha: distributed ledger technology and what it could mean to the Fed
Distributed ledger technology (DLT) is an emerging technology that could have major implications for the U.S. payments system, financial regulations, and cybersecurity, among other aspects of financial services. We asked Senior Vice President Jim Cunha for a Fed perspective on what DLT could mean for the future of the financial industry.
You’re a 33-year Fed veteran with most of those years spent working in the payments and technology arenas. How do you see DLT changing the U.S. payments system?
DLT has the potential to fundamentally change many areas of financial services, payments being just one. Change is also very possible in securities (sales and post trade processing), derivatives, trade finance, and supply chain to name a few. Most of the experimentation and development work in payments is in cross-border and interbank settlement. There are production applications in the cross-border space, but only experiments and research in the interbank settlement area (sometimes called settlement coins). Most of this is occurring outside of the U.S., so I think there is more potential for change there, but who knows what the future holds back home. There are a lot of very smart people looking at this—both startups and the established players.
So why is the Boston Fed interested in DLT?
Over the years, we’ve spent a lot of time working on new technology in payments, including the original research and development in check imaging technology, the chip-based prepaid card we’ve provided to the U.S. military since 2000, and the Mobile Payment Industry Workgroup. Because of that focus, we’ve been looking at e-money since the 1990s, crypto-currencies since 2011, and DLT for the last four years or so.
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. Our regulators care about the safety and soundness of individual institutions and important market players. Many of them are experimenting with DLT, so we need to be able to assess the pros and cons of the technology and ensure they are too. Many institutions in New England are looking seriously at DLT, so we need to connect with what they are working on as well.
It’s also wicked cool, so it’s a personal passion of mine.
DLT is one of several technology game changers that are transforming the financial landscape. As you look at the future of FinTech, what other disruptors are on the horizon?
There are a lot of interesting areas that touch financial services, including data analytics, artificial intelligence, machine learning, natural language processing, and robotics (both physical robots and software automation of processes). Also, when you combine some of these with new chip technology you get exciting movements like the Internet of Things (IoT). While these technologies are really interesting, the bigger challenge is finding the right business case and proving the technology can work in an effective and efficient way.