The work of creating a possible U.S. digital dollar inched ahead Thursday with initial research by the Federal Reserve Bank of Boston into the code that eventually could support such a currency.
The Boston Fed, in collaboration with the Massachusetts Institute of Technology’s Digital Currency Initiative, released a 35-page white paper on the findings of its technological research, which focused on developing software to process transactions.
The researchers created and examined two possible code bases, including one that was capable of handling 1.7 million transactions per second.
“Both architectures met and exceeded out speed and throughput requirements,” the central bank branch said in an executive summary of the report. The researchers wanted to be able to process 100,000 transactions per second and settle them in less than 5 seconds. The two code bases beat those projections.
The joint research project is separate from the work being conducted by the Federal Reserve to study the possible benefits and risks of a U.S. central bank digital currency, or CBDC. The Fed, led by Chair Jerome Powell, has indicated it doesn’t plan to move forward with a government-backed coin unless it has the support of the White House and Congress.
The MIT and Boston Fed researchers released their transaction processing software, OpenCBDC, under an open-source license, allowing anyone to inspect, modify, and enhance the code.
“We believe that this is the best way to ensure that OpenCBDC is vetted by a large number of people–all of whom will bring unique knowledge, skills, and ideas for improvement,” Neha Narula, director of MIT’s Digital Currency Initiative, said on a call with reporters.
Thursday’s release concludes the first phase of the multiyear research initiative, known as “Project Hamilton,” that was announced in August 2020. A second phase will explore more complex capabilities and examine key issues, such as cybersecurity and how to balance user privacy with the need for transparency to deter criminal activity.
Private-sector intermediaries will also impact the technology that could be used in a U.S. CBDC, Boston Fed Executive Vice President and Interim Chief Operating Officer Jim Cunha told reporters. The Fed has indicated that it would likely rely on intermediaries, which could include commercial banks or other types of regulated financial service providers, to offer accounts and facilitate digital dollar payments.
There’s “uncertainty about what those intermediaries may look like and how the information may flow,” Cunha said.
Pursuing a U.S. CBDC could help ensure the U.S. dollar’s dominance, especially as other countries like China move forward with their own digital currencies. But the Federal Reserve has also pointed out a range of potential risks, including possible runs on financial firms and a reduction in the amount of deposits in the traditional banking system.
Strategists at Bank of America Corp. have said they think a U.S. digital dollar is inevitable, predicting that issuance would likely occur between 2025 and 2030.
Cunha said he expects the technological research into a possible CBDC will continue over the next couple of years, at a minimum.
“There’s a lot of work to do here,” he said.
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