Boston Fed, MIT partner on central bank digital currency research project

The Federal Reserve Bank of Boston and the Massachusetts Institute of Technology are partnering on a research effort focused on central bank digital currencies (CBDC).

Federal Reserve governor Lael Brainard spoke about the initiative during an appearance Thursday. In her remarks, Brainard touched on a variety of points around the subject of CBDC and then highlighted the work between the Boston Fed and MIT. Notably, Brainard said that any code developed as part of the initiative would be made public "for anyone to use for experimentation."

Brainard remarked:

"To enhance the Federal Reserve's understanding of digital currencies, the Federal Reserve Bank of Boston is collaborating with researchers at the Massachusetts Institute of Technology in a multiyear effort to build and test a hypothetical digital currency oriented to central bank uses. The research project will explore the use of existing and new technologies as needed. Lessons from this collaboration will be published, and any codebase that is developed through this effort will be offered as open-source software for anyone to use for experimentation."

"The objectives of our research and experimentation across the Federal Reserve System are to assess the safety and efficiency of digital currency systems, to inform our understanding of private-sector arrangements, and to give us hands-on experience to understand the opportunities and limitations of possible technologies for digital forms of central bank money," she continued. "These efforts are intended to ensure that we fully understand the potential as well as the associated risks and possible unintended consequences that new technologies present in the payments arena."

Brainard also detailed some of the work being conducted within the Federal Reserve system.

"We have been conducting in-house experiments for the last few years, through means that include the Board's Technology Lab, which has been building and testing a range of distributed ledger platforms to understand their potential opportunity and risk," she explained. "This multidisciplinary team, with application developers from the Federal Reserve Banks of Cleveland, Dallas, and New York, supports a policy team at the Board that is studying the implications of digital currencies on the payments ecosystem, monetary policy, financial stability, banking and finance, and consumer protection."

During her remarks, Brainard stressed that the Fed has not made any final determination as to whether it would launch its own digital currency.

"It is important to understand how the existing provisions of the Federal Reserve Act with regard to currency issuance apply to a CBDC and whether a CBDC would have legal tender status, depending on the design," said Brainard. "The Federal Reserve has not made a decision whether to undertake such a significant policy process, as we are taking the time and effort to understand the significant implications of digital currencies and CBDCs around the globe."

Federal Reserve chairman Jerome Powell has previously spoken about the Fed's work in the area of CBDC. He told members of Congress in February: "We’re working hard on it, we have a lot of projects going on, lot of efforts going on on that right now."