Fed's Waller: Cryptocurrency technology is not scary; we should work with the industry to promote payment innovation

Author: Zhao Yuhe, Wall Street Journal

Ahead of the Jackson Hole Global Central Bank Annual Meeting, the cryptocurrency community held a blockchain seminar at Jackson Hole, attended by senior officials from the Federal Reserve, the SEC, and Trump's son. Christopher Waller, one of the leading candidates for the next Federal Reserve Chair and a Federal Reserve Governor appointed by US President Trump, spoke at the meeting on Wednesday, calling for embracing the "technology-driven revolution" taking place in artificial intelligence and stablecoins, believing it can boost the US economy.

In his speech, Waller stated that digital asset innovation is "not scary" and that the payment system is undergoing a "technology-driven revolution." Recent advances in computing power, data processing, and distributed networks are spawning many innovative payment services. "There's nothing to be afraid of when thinking about smart contracts, tokenization, or distributed ledgers." "The technology we have today may be new, but leveraging innovative technologies to build new payment services is not." Waller, appointed by Trump in 2020, has previously expressed support for the application of certain technologies in decentralized finance (DeFi), believing they can complement the traditional payments system. For example, he cited distributed ledger technology as a way to record asset transfers more efficiently and quickly. In his remarks on Wednesday, Waller emphasized that the impact of DeFi in payments, including its risk mitigation capabilities, could have positive consequences if the private sector collaborates with the Federal Reserve. He said both the public and private sectors can embrace innovation in their respective roles. He said that in the past few years, some of the most groundbreaking innovations have been "stigmatized" because they are linked to digital assets. "These are just technologies, why are they so bad? If these technologies can bring more practical and interesting applications, we should also study and adopt them." Media analysis said that cryptocurrency companies are weighing a key strategic issue: how much control they should have in the digital currency circulation mechanism, whether to build an entirely new system, rely on a shared system, or a combination of both. In this regard, Waller said that the evolution of the payment system has always been the result of technological progress. Most of the changes are led by private sector innovation, while the key foundation is supported by the Federal Reserve - either providing core infrastructure as a system operator or guiding the entire industry to develop specific solutions such as payment standards.

"This complementary relationship has made the United States' payment system secure and efficient, and has become the backbone of commercial activities at home and abroad. Therefore, the Federal Reserve must continue to embrace technological advances, promote the modernization of services, and continue to support innovation in the private sector."

The Federal Reserve is studying tokens and AI technologies in payments

The Federal Reserve launched its long-awaited payment network FedNow in 2023, allowing eligible banks with accounts at the Federal Reserve to realize instant funds transfers. Prior to this, the United States lagged behind other countries to some extent in the promotion of real-time payments.

Waller said that the Federal Reserve is studying a new round of payment technology innovations, including tokenization, smart contracts, and the application of artificial intelligence in payments. "As a central bank, we may never go down this path, but there's no reason not to explore it and see what happens." Waller said that as a payments system operator, understanding these trends is crucial. This will not only help the Federal Reserve better support private companies that use the relevant infrastructure, but also assess whether emerging technologies have the potential to improve the Federal Reserve's existing platforms and services. "In fact, I believe the Federal Reserve should further strengthen its interaction with industry innovators, especially in the context of the growing integration of traditional finance and the digital asset ecosystem. We are exploring how to advance this work, so stay tuned." The Wyoming Blockchain Summit was held three days before the Jackson Hole Global Central Bank Annual Meeting. Analysts said the summit marked the culmination of what Goldman Sachs previously described as the "Summer of Stablecoins."

Waller is also the second senior Federal Reserve official this week to publicly praise the cryptocurrency industry. The day before Waller's speech, Michelle Bowman, Vice Chairman of Supervision at the Federal Reserve, also said at the summit that banks and regulators should give the industry better treatment and praised the development of tokenization.

Previous articles stated that Bowman said in her speech on Tuesday that the banking industry and regulators must accept the benefits of new technologies such as artificial intelligence and cryptocurrencies, otherwise their role in the economy may gradually decline. She said that ideally, regulators should allow these new uses to "expand in a way that is beneficial to the banking system."