Boston Fed, MIT see value in code with digital-dollar potential

The work of creating a possible U.S. digital dollar inched ahead Thursday with 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 examined two possible code bases, including one that was capable of handling 1.7 million transactions per second. 

Andrew Harrer/Photographer: Andrew Harrer/Bloo

“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. Both code bases beat those projections.

The joint research project is separate from the work being conducted by the Federal Reserve Board in Washington 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. 

“Open-source software provides an important way to collaborate, experiment, and implement,” Neha Narula, director of the MIT Digital Currency Initiative, said in a news release Thursday. 

Thursday’s release concludes the first phase of the multiyear research initiative, known as “Project Hamilton,” that was first announced in August 2020. A second phase will explore more complex capabilities and will examine key issues, such as user privacy and cybersecurity. 

Moving forward with 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 have said they think a U.S. digital dollar is inevitable, predicting that issuance would likely occur between 2025 and 2030.