View of the Massachusetts Institute of Technology
View of the Massachusetts Institute of Technology. MIT

The Federal Reserve Bank will be collaborating with the Massachusetts Institute of Technology (MIT) in order to gain hands-on experience and understanding of Central Bank Digital Currency (CBDC).

Speaking during an appearance at the Federal Reserve Bank of San Francisco, Fed Governor Lael Brainard announced that researchers from MIT will be working with the Federal Reserve Bank of Boston on a project to develop and test the potential use cases of CBDC. She further said that any code developed during the collaboration will be made available to the public “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.”

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She also stressed that, while digital currencies do bring opportunities to the table, they could also prove a threat when it comes to privacy, illicit activity and financial stability, and as such, the Reserve must understand all aspects of CBDCs before it proceed with the creation of one. When it comes to the research effort, Brainard said that both existing and new technologies will be explored as needed.

Brainard 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.”

She also noted that in-house experiments have been conducted by the Feds for the past few years, in collaboration with the Board’s Technology Lab. By building and testing several distributed ledger platforms, the Feds were trying to understand the impact digital currencies could have on the payments ecosystem, monetary policy, financial stability, banking and finance and consumer protection.

In the meantime, other governments around the world are already conducting pilot tests, and real-world tests of their own CBDCs. Earlier this year it became known that the Bank of Thailand has already used its digital baht in transactions with some businesses, and that it was now entering into a new development phase of the CBDC.

China in particular has seen a phenomenally fast progressing when it comes to the development of their digital yuan. Major businesses in the country are already in talks with the People’s Bank of China (PBoC), trying to become the first to test its CBDC. This week it was also reported that the digital yuan could soon be tested in the Hong Kong’s Greater Bay Area (GBA), a megapolis with a population of over 69 million people, and GDP of around $1.5 trillion.

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