U.S. Housing Agency Weighs Blockchain for Federal Funds

Highlights:

• HUD is considering using blockchain to track federal grants in its systems.
• The agency is also considering using stablecoins for housing grants.
• Critics argue that introducing a new system will complicate operations at the agency.

The U.S. Department of Housing and Urban Development is reportedly considering launching a blockchain test to help track federal grant payments. The agency is also discussing using blockchain to track spending, according to meeting recordings and documents. Some officials believe this will make the granting program more transparent and accountable. Some doubt that the technology is needed because HUD already has the tools to monitor payments.

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Discussions indicate that HUD could use the technology as a pilot for further use on a federal scale by the government. Reports suggest some officials see blockchain as a way to fix inefficiencies in tracking financials. However, there are concerns as to whether this would be a useful thing or if it would bring unnecessary complexity.

At a recent meeting, HUD officials presented a proof of concept of how the community planning and development office might begin to use the technology to keep track of grants. The organization would be able to trace funds from the initial allocation to sub-recipients using the system.

The group has disagreed on the risks of using the technology. Historically, HUD has been able to track its spending without blockchain, an official said, and so found the initiative to be unnecessary.

Concerns Arise Over New Technology in Federal Housing Programs

Apart from tracking grants, HUD discussions have also included the possible use of stablecoins as well. Stablecoins are digital tokens pegged to real-world currencies, such as the US dollar. Some critics fear that using cryptocurrency for federal payments may present unwanted risks.

Some HUD employees have expressed concerns that stablecoins could inherently destabilize housing programs. Although stablecoins are tied to the dollar, they worry that under certain conditions, their value can still fluctuate. Some stablecoins have lost their peg in the past, which has resulted in a massive shrinking of value. Payments to grant recipients in stablecoins could create uncertainty over time over how much their funding was worth.

Furthermore, it is unclear if this would lead to another unregulated financial instrument in the housing market. Introducing cryptocurrency into public funding could have highly unpredictable consequences like in previous financial crises, one official said. HUD has never had difficulty tracking grants, and the transition to blockchain and cryptocurrency is unnecessary.

Irving Dennis, the new principal deputy chief financial officer, is reportedly leading the push for blockchain and stablecoins within HUD. Dennis previously worked at Ernst & Young, a consulting firm that also championed the initiative. Last month, an executive from Ernst & Young met with HUD officials to discuss the project, which has further fueled internal debate about the potential impact of the proposal.

Government Interest in Blockchain

The federal government has been showing increasing interest in blockchain technology. The current administration has been recruiting industry advocates to run federal agencies and evaluate how crypto can be inserted into government operations. In the UK, the government intends to launch digital government bonds using blockchain.

In addition to HUD, the Treasury Department, the Department of Commerce, and HUD itself, from past initiatives, have all examined blockchain applications. These agencies have studied, prototyped, and held working groups for how blockchain can improve financial oversight and transparency.