The United States has finally joined the bandwagon of countries testing a central bank digital currency (CBDC), Thursday reports revealed.
Governor Lael Brainard said during a virtual technology event yesterday that the US Federal Reserve, in collaboration with research teams from Boston Fed and Massachusetts Institute of Technology (MIT), is conducting experiments with a hypothetical digital currency.
According to Brainard, both institutions have been researching blockchain technology for several years to see how the central bank can utilize it for a digital dollar alongside the effect it might have on the existing financial system.
“We are taking the time and effort to understand the significant implications of digital currencies and central-bank-digital-currencies around the globe,” she said, adding that the dollar’s significance as a global reserve currency means the Fed has a vital role to play in the research and development of digital currencies.
Although the Fed is taking the next step to build and test a DLT-based currency, Governor Brainard noted that the central bank “hasn’t yet committed” to issuing a CBDC should the experiment become successful. It is strictly for research purposes, she said.
A formal policy process would be required before the central bank can issue or use the currency. And that decision would involve the government and other stakeholders with many legal questions to be answered. Brainard noted that the Fed had not started the process, nor has it decided to start it.
Findings from the experiment would be published, and the codebase would be made available through an open-source software for anyone to use as an experiment, the governor added.
Leading the project, James Cunha, the senior vice president at the Boston Fed, explained that the first step is to develop an “engine and the software that can meet the needs” of CBDC for a country as big as the United States.
According to Cunha, some of the significant challenges involved in the project include large transaction volumes, security, and privacy.
While the US just started its experimental phase, other countries like China and South Korea are leading the CBDC race.
Major companies across different industries are already testing China’s new digital yuan in large scales. CryptoPotato reported in late July that Tencent-backed food delivery giant Meituan Dianping would test the country’s national digital currency on its web-based platform used for shopping foods, consumer products, and retail services.