CBDC Research From Boston Fed and MIT Shows Promising Results

The world’s central banks actively explore the world of central bank digital currencies (CBDCs), and the U.S. financial authorities are also moving in this direction.

Boston Fed and MIT Work Together To Research CBDC Technology

The Federal Reserve Bank of Boston (Boston Fed) and Massachusetts Institute of Technology (MIT) have recently released the first results of their research on the topic.

Boston Fed and MIT are working on Project Hamilton, which is a multi-year research project on CBDCs. The published research is the result of Phase 1 research.

In Phase 1, researchers focused on the design of the transaction processing system, which was implemented using two architectures. Researchers stated that both architectures “met and exceeded our speed and throughput requirements”.

Importantly, researchers found that “existing database and distributed systems technology is sufficient to provide a more traditional payment architecture for CBDC […]”. There was another interesting finding:

“Despite using ideas from blockchain technology, we found that a distributed ledger operating under the jurisdiction of different actors was not needed to achieve our goals”

In Phase 2, researchers will “explore new functionality and alternative technical designs”. The research is still in the early stages and the U.S. is not ready to release a CBDC anytime soon as it may have a major impact on the world’s financial markets, but traders must monitor this story closely.

Traders Ignore the Threat From CBDCs

At this point, financial markets do not pay too much attention to CBDCs which may threaten leading cryptocurrencies like Bitcoin and Ethereum, as well as established payment companies like Visa and Mastercard.

It should be noted that countries differ in their approach towards CBDCs. India expects to release a ‘digital rupee’ soon, while officials in Japan are worried about the potential negative impact on the economy.

The markets bet that authorities will not release anything that may deal significant damage to traditional banks and payment services, as it will crush the economy and lead to a financial crisis.

In this light, research is expected to proceed at a measured pace, and traders should not be worried about a CBDC from the U.S. in the foreseeable future.