Boston Fed Meets with MIT to Discuss Digital Currency

With the progression of the digital currency race and the unprecedented government stimulus of 2020, the threat to traditional monetary policy has never been higher. Due to a variety of circumstances, the Federal Reserve of Boston deemed it necessary to build and test a digital currency “oriented to central bank uses.” The U.S. is beginning to feel the pressure of being beaten to the punch by a couple major global parties.

In 2019, we saw digital currency advancements like the Libra project and China’s CBDC begin to draw a lot of attention. Both of these projects potentially threaten the parity of the dollar, so naturally the Fed/MIT materials heavily reference these projects. They begin by stating

Digital currency is direct central bank money (like cash) that exists only in digital form. No G20 country has fully launched a central bank digital currency, or CBDC, but China and Sweden are among those working on it. Private firms are also perfecting digital money, with Facebook’s Libra project among the best known.”

Although China is still working on it and Libra is definitely far from perfect, the U.S. is still feeling the pressure. The dollar’s global dominance is something that the Fed fights to maintain every day, and part of that fight involves keeping a close eye on the advancements of other world powers like China. The People’s Bank of China is attempting to allow consumers and businesses to transfer money from commercial banks to digital wallets, and vice versa. They have advanced their digital yuan project so far in the past year that McDonald’s and Starbucks are interested in becoming test merchants.

Bringing in MIT is a sign that the government is beginning to think seriously about the development and implementation of a digital currency. However, we are still a long way off and likely will not see or hear any developments before the end of the year. The biggest hurdles in this situation are not necessarily technological. Talie Baker, a senior analyst at Aite, said

I’m not sure that bringing in MIT will help advance a CBDC initiative in the U.S. more quickly. There are many concerns other than technology that need to be addressed, the biggest hurdles are political in addition to philosophical decisions around the creation of money and the impacts CBDC would have to competition amongst banks in the US.”

The work to design and implement a digital currency is complex, and something that should not be rushed into. Although this may not be indicative of a digital currency coming anytime soon, it is promising to see an effort being made by the U.S. government to innovate.