Casey Wagner

A number of US representatives are concerned a government-funded central bank digital currency project will be sold to commercial banks.&nbsp;



Reps. Tom Emmer, R-Minn., and Patrick McHenry, R-N.C., drafted a letter to Susan Collins, head of the Federal Reserve Bank of Boston, Thursday to express concerns over the New York Fed’s Project Hamilton and related privacy issues.



“It has come to Congress’s attention that some firms participating in Project Hamilton intend to use government resources from the project to design a CBDC with the intent to then sell those products to commercial banks,” a Thursday <a href="https://emmer.house.gov/2022/12/emmer-leads-inquiry-into-boston-fed-led-cbdc-effort" target="_blank" rel="noreferrer noopener">statement</a> from Emmer’s team said.



Project Hamilton, a joint venture between the Boston Fed and MIT, is primarily focused on developing a retail digital dollar and corresponding payment channels. The team completed the <a href="https://blockworks.co/news/mit-and-boston-fed-conclude-first-phase-of-cbdc-research-project" target="_blank" rel="noreferrer noopener">first phase</a> of the project in February, when researchers said the concept is scalable and the technology feasible. 



Project Hamilton is giving certain private sector players an unfair advantage — as they would have exclusive access to government-funded research and initiatives — the representatives <a href="https://twitter.com/RepTomEmmer/status/1598412817396293643?s=20&amp;t=OXEWLUEV8BrxwmKN413iPQ" target="_blank" rel="noreferrer noopener">argued</a>. Emmer and McHenry are requesting more information about the involvement of private sector partners.



“The letter also asks how the Fed plans to address concerns that many have regarding the dangers a CBDC could pose to financial privacy and financial freedom, which were the subject of over 65% of the letters in response to the Fed’s January 2022 report on CBDCs,” Emmer representatives said.&nbsp;



CBDC projects in the US have shown signs of progress in recent months. The New York Fed and the New York Innovation Center (NYIC) have partnered on a separate CBDC-related project, known as <a href="https://blockworks.co/news/project-cedar-ny-fed-closer-to-wholesale-central-bank-digital-currency" target="_blank" rel="noreferrer noopener">Project Cedar</a>, which researches what a CBDC might look like in the US and what potential use cases it may have. 



Project Cedar’s phase one results, released in November, show that blockchain and distributed ledger technology allowed for foreign exchange spot settlements to complete in under ten seconds, the NYIC said, showing potentially revolutionary real-world use cases for CBDCs.&nbsp;



“Currently, cross-border transactions function well, but there are opportunities for improvement,” the NYIC said in its report. “In general, it takes around two days for a [foreign exchange] spot transaction to settle.”



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CBDC Will Give Private Players Unfair Advantage, US Reps Warn

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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