What LIBNAME engine does this relate to? By default if you don't specify an engine it will default to V9, to access or create SAS V9 datasets in a SAS library. If this is the engine you are referring to, then any connection to a remote server folder needs to be done in the SAS server OS outside of SAS.
What I was exploring is the ability to use public/private key combination in a libname statement (for example to MySQL, snowflake, data bricks using odbc or SAS Access engines ) instead of username /password combination. I agree the database too should support it.
When you define a LIBNAME to a remote database, SAS uses the database's client (which must be installed and configured on the SAS computer). How this client uses encryption in the connection to the DB server must be configured in the client, not in SAS. In SAS you only provide the credentials for the DB, and those are user/password.