The US Treasury Department is concluding a series of tests of a blockchain-based platform which monitors and tracks grant payouts.
The agency has almost completed a proof of concept program which is planned to track letters of credit issued to recipients of financial grants.
Electronic federal letters of credit are sent out to grant recipients to help track the grant payments made to grant recipients, which will be tokenized in the hopes that this strengthens the security of the transaction and provides better monitoring.
The tokenization should allow the agency to track the flow of grant money from federal coffers to the grantees. Instead of an actual cash exchange, the token is a representation of the payment that can be tracked more efficiently, with associated data including recipient identification, grant amount and date the grant was awarded.
Mr Craig Fischer, affirmed that the new US Treasury platform is a private system, and rather dissimilar to a decentralized open network that can be viewed by the public.
Fischer said:
This isn’t the Bitcoin network where everything is visible to everyone.
The US Treasury Department has been investigating ways to leverage blockchain for a couple of years. In 2018, it worked on a pilot project to develop a prototype blockchain to manage physical assets (such as computers and cell phones). This use case, however, uncovers the benefits Blockchain brings "for streamlining burdensome reconciliation operations that are involved in many financial transactions."
This proof of concept is also interesting given recent remarks made by US Treasury Secretary Steven Mnuchin, an outspoken critic of Bitcoin and cryptocurrencies, that digital assets are a “national security issue”.
While speaking at a House Financial Services Committee hearing last month, Mnuchin also dismissed the idea of creating a central bank digital currency (a CBDC), saying that in the next five years, he saw no need for the Federal Reserve to issue a digital currency.
This echoes similar sentiments by the Reserve Bank of Australia, as the bank openly stated in its submission to the Senate Select Committee on Fintech and Regtech that it is currently not considering central bank digital currency for retail use, but will continue investigating a wholesale use CBDC.