The Federal Reserve has historically not been enamored with bitcoin, which is understandable given how it’s billed as a competitor to the dollar in transactions.
So when David Andolfatto, vice president and research director for the Federal Reserve Bank of St. Louis made the suggestion yesterday (Jan. 19) that bitcoin’s infrastructure and processes could serve as an inspiration for reform within the central bank, it may have been a surprise to some in the industry. While Andolfatto is bearish on the idea that bitcoin is the currency of the future, or even the forerunner of digital currency, the system of blockchains and de-centralized ledger keeping could make the Federal Reserve a lot more transparent to the public and safeguard the bank’s record keeping in the future.
Andolfatto said there are some similarities between the Federal Reserve and bitcoin’s infrastructure, specifically that both were “protocols” and computer programs at heart, with their own laws and constitutions regarding the disbursement of the currency they control. Where they differ, and what Andolfatto believes is something the Federal Reserve could do a better job with, is that bitcoin is monitored by an open sourced, de-centralized system of ledger keeping, which he called a “stroke of genius.”
Currently, the Federal Reserve doesn’t have such a system for monitoring transactions between banks and financial institutions, which can cause problems should the main bookkeeping system go down. With a blockchain style of accounting, where each of the 12 member institutions has access to the same records, it would open up the processes of financial transactions to the public, increasing transparency and accountability. With banking and modern economies now almost completely digital (which informs his belief that bitcoin is merely one of many digital forms of currency and payment), having a modern bookkeeping system like that of bitcoin would be optimal, and would lower financial transaction hindrances and accounting costs.