Breaking: The Federal Reserve Bank of Boston is building and testing a hypothetical digital currency oriented to central bank uses

According to an update on Digital Currencies from the Federal Reserve Board and the Federal Reserve Bank of San Francisco, the Federal Reserve Bank of Boston is currently collaborating with some researchers at the Massachusetts Institute of Technology to build and explore a hypothetical digital currency specifically designed for bank uses. 

The objectives of our research and experimentation across the Federal Reserve System are to assess the safety and efficiency of digital currency systems, to inform our understanding of private-sector arrangements, and to give us hands-on experience to understand the opportunities and limitations of possible technologies for digital forms of central bank money. These efforts are intended to ensure that we fully understand the potential as well as the associated risks and possible unintended consequences that new technologies present in the payments arena.

While the report clearly states it’s just a test, it is still quite important as it shows the interest in digital currencies from governments around the world. The report also states that for the acceptance of a CBDC (Central Bank Digital Currency) we would need to see a significant change in policy and ‘extensive deliberations and engagement with other parts of the federal government.’

Furthermore, the Federal Reserve also noted that it is continuously collaborating with other central banks in a CBDC coalition. 

More broadly, the Federal Reserve looks forward to increased international engagement on matters related to innovation and technological change that impact central banks and those we serve. Our new initiative with the Bank of International Settlement’s Innovation Hub, through an innovation center at the Federal Reserve Bank of New York, will provide a useful venue for increased cooperation and exchange.

It’s unclear how this will affect the cryptocurrency market in the short-term, however, if the program is successfully completed, the implications are massive.