By Jonnelle Marte
– The Federal Reserve Bank of Boston and the Massachusetts Institute of Technology (MIT) unveiled on Thursday long-awaited technical research and open-source code that could be used as the groundwork for a potential central bank digital currency.
The research does not suggest that the U.S. central bank will move toward launching a CBDC, a step it has said it would not take without clear support from the White House and Congress.
“There has been no decision to move past this research phase, but if a CBDC was launched it would be something that would have to evolve over time,” Jim Cunha, an executive vice president at the Boston Fed, told reporters on Thursday.
The first phase of the multi-year project, dubbed “Project Hamilton,” focused on developing software that is flexible and resilient. The work resulted in code that is capable of handling 1.7 million transactions per second. Researchers also found the “vast majority” of transactions settled in under two seconds.
The team developed technology that can be adjusted as more policy questions regarding the structure and purpose of a CBDC are addressed.
For example, the first version of the code did not include intermediaries or fees, but researchers said those roles and features could be added after policymakers and other parties make decisions on the best way for consumers to access their funds and conduct transactions.
In a separate discussion paper released last month by the Fed’s Board of Governors, the central bank said a digital dollar would “best suit” U.S. needs if it were intermediated through the current financial system, but did not rule out other approaches.
“Any system that might be used in the future, I think, is going to depend a lot on what policymakers decide,” said Neha Narula, director of MIT’s Digital Currency Initiative.
Fed policymakers and lawmakers are divided on the need for a CBDC. Some say it could improve financial inclusion, while others worry the costs could outweigh the potential benefits.
The paper looked at some of the tradeoffs that could appear with different structures. For instance, researchers found that using distributed ledger technology, which underpins most cryptoassets and verifies transactions without the use of intermediaries, has “downsides.” They said the approach could create bottlenecks and could lead to more privacy issues.
In the next phase, the Boston Fed and MIT will explore alternative designs and look more closely at other issues such as security and programmability. They will also look at ways to balance privacy issues with concerns about compliance.
The Fed wants to hear from the public about how a potential CBDC could be used or structured. Project Hamilton researchers released their software under an open-source license, adding that they want to receive feedback from other experts. And the Fed board is collecting comments on the issue via an online form.