Sebastian Sinclair

<div id="highlights-block_61fc86fed62ed" class="highlights">
 <ul>
 <li>The Boston Fed and MIT wrapped up the first phase of their CBDC project, dubbed Hamilton</li>
 <li>Researchers looked at the risks and benefits of CBDC design while toying with aspects of cryptography, distributed systems and blockchain tech</li>
 </ul>
 
</div>



The Federal Reserve Bank of Boston and the&nbsp;Digital Currency Initiative&nbsp;at MIT have concluded the first phase of a research project analyzing the merits and technical feasibility of a central bank digital currency (CBDC).



Dubbed Project Hamilton, the pair described the concept as a &#8220;theoretical high-performance and resilient transaction processor,&#8221; in a <a href="https://www.bostonfed.org/news-and-events/press-releases/2022/frbb-and-mit-open-cbdc-phase-one.aspx" target="_blank" rel="noreferrer noopener">blog post</a> on Thursday.



The project is not intended to create a usable CBDC for the US. Instead, the project has set out to assess the nascent tech for &#8220;opportunities and tradeoffs associated with a hypothetical general-purpose [CBDC],&#8221; according to the pairs&#8217; white paper published alongside the post.



To better understand the risks and benefits, Hamilton&#8217;s aim has been to build a test environment from scratch to determine the nuanced decisions they pose on the impact of the final CBDC design.



In the first phase, researchers touched on aspects of the design, ranging from cryptography, distributed systems and blockchain tech, to build and test platforms that would provide ammunition for policymakers, the pair said.



Specifically, MIT and the Boston Fed said a CBDC &#8220;could support cryptographic payment&#8221; while offering up greater complexity in transfers to multiple sources of funds. They also said a retail CBDC could deliver beyond what is currently available to consumers with cash or bank accounts.



Indeed, the researchers who coded the project were able to achieve a system capable of handling 1.7 million transactions per second, while &#8220;the vast majority of transactions&#8221; were able to settle in under two seconds.



Over the next few years, MIT and the Boston Fed said the second phase of the Hamilton project will explore alternative designs to the technical implementation of CBDCs and build upon the first phase&#8217;s focus on privacy, resiliency and functionality.



&#8220;It is critical to understand how emerging technologies could support a CBDC and what challenges remain,&#8221; said Jim Cunha, the Boston Fed executive vice president and interim chief operating officer, in the post.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">&#8220;This collaboration between MIT and our technologists has created a scalable CBDC research model that allows us to learn more about these technologies and the choices that should be considered when designing a CBDC.&#8221;</blockquote>



So far, the US has taken a cautious approach to CBDC policy. While no plans have been set forth to introduce a digital dollar into the US economy, both Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell have warmed to the idea.



In January, the Federal Reserve Board of Governors released its own <a href="https://www.federalreserve.gov/publications/files/money-and-payments-20220120.pdf" target="_blank" rel="noreferrer noopener">research paper</a> assessing the benefits and costs around CBDC implementation through the lens of effective policy. It concluded that a CBDC’s design would influence monetary policy while contributing to a robust, safe and stable financial system.



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MIT and Boston Fed Conclude First Phase of CBDC Research Project

Casey Wagner

<div id="highlights-block_61523acd47e2d" class="highlights">
 <ul>
 <li>Dallas and Boston Fed Governors Robert Kaplan and Eric Rosengren resign in the wake of push back around trading activity while setting monetary policy </li>
 <li>Rosengren cited health reasons for the early departure, which comes nine months before his mandatory retirement after 35 years with the Fed</li>
 </ul>
 
</div>



Within the span of 24 hours, Federal Reserve governors Robert Kaplan and Eric Rosengren both announced early departures from their current posts in the wake of increased scrutiny of personal trading patterns.



“The Federal Reserve is approaching a critical point in our economic recovery as it deliberates the future path of monetary policy,” Kaplan said in a <a href="https://www.dallasfed.org/news/releases/2021/nr210927kaplan.aspx" target="_blank" rel="noreferrer noopener">statement</a> released by the Dallas Fed Monday. “Unfortunately, the recent focus on my financial disclosure risks becoming a distraction to the Federal Reserve’s execution of that vital work. 



Kaplan’s last day serving as president and CEO of the Fed Bank of Dallas will be Friday, October 8, 2021.



Rosengren, who would have been required to retire in 2022, announced in a <a href="https://www.bostonfed.org/news-and-events/news/2021/09/rosengren-retirement.aspx" target="_blank" rel="noreferrer noopener">statement</a> that he will be leaving his position as Boston Fed President and CEO on September 30, 2021, due to health reasons. Rosengren was set to become a voting member of the Federal Open Market Committee, which sets rates. 



The news comes as both officials faced public criticism for trading stocks and other investments while helping to determine monetary policy.&nbsp;



Earlier this month, a financial disclosure form revealed that Kaplan made multiple stock trades exceeding a million dollars in 2020. Fed officials are required to have dates listed on disclosure forms, but Kaplan’s form only referred to “multiple” dates.&nbsp;



“During my tenure, I have adhered to all Federal Reserve ethical standards and policies,” Kaplan said in his statement. “My securities investing activities and disclosures met Bank compliance rules and standards.”&nbsp;



It was also revealed that Rosengren participated in trades and investments related to the real estate market.&nbsp;



Following the disclosures and the resulting controversy, Rosengren and Kaplan said they would each sell their current holdings and move the money into cash or funds without exposure to equities.&nbsp;



“No one on the [FOMC] is happy to be—to be in this situation, to be having these questions raised. It’s something we take very, very seriously,” said Fed Chairman Jerome Powell following the most recent FOMC meeting in response to the situation.&nbsp;



The Central Bank assured the public that the trading rules would be revisited and reviewed.&nbsp;



“Because the trust of the American people is essential for the Federal Reserve to effectively carry out our important mission, Chair [Jerome] Powell late last week directed Board staff to take a fresh and comprehensive look at the ethics rules around permissible financial holdings and activities by senior Fed officials,” a Fed spokesperson said on September 16.



Rosengren served for more than 35 years at the Boston Fed and is well known for his work following the financial crisis. The bank is currently researching the possibility of a fully digital dollar, something Powell has <a href="https://cms.blockworks.co/powell-a-cbdc-would-make-cryptocurrencies-obsolete/" target="_blank" rel="noreferrer noopener">expressed interest</a> in exploring as well. 



It is unknown who will succeed the two bank leaders, but given Rosengren’s set retirement date, it is expected that the search for a Boston Fed head has already begun.&nbsp;