The Bank of Canada and Massachusetts Institute of Technology (MIT) are to collaborate on a 12-month research project on central bank digital currency (CBDC).
The central bank will work with MIT Media Lab’s Digital Currency Initiative (DCI) team to explore how advanced technologies could affect the potential design of a CBDC, according to an announcement.
Bank of Canada said in a brief statement that the collaboration would focus on ‘exploring and experimenting with potential technology approaches to determine how a CBDC could work’.
As is also the case in most major nations, a decision has yet to be made on whether to introduce a CBDC. But the country’s central bank described itself as ‘ramping up contingency planning’ more than a year ago, at the time publishing three CBDC design proposals from the University of Calgary, McGill University and the University of Toronto/York University (Toronto).
In its own announcement on the collaboration, MIT DCI said the research would ‘investigate and experiment with potential CBDC technology designs and approaches, and evaluate key trade-offs, opportunities and risks’. MIT DCI, which is already about 18 months into a multi-year CBDC partnership (dubbed ‘Project Hamilton’) with the Federal Reserve Bank of Boston, states its ‘interest in the collaboration stems from a desire to have, as much as possible, a hand in ensuring that neutral, responsible research is being done with this technology before any policy decisions are made’.
‘Building and implementing helps us understand the problems and challenges better, putting us in a unique position to help shape a CBDC that emphasises privacy, user agency and financial equity,’ MIT DCI states.
Building capacity ‘as contingency’
The Bank of Canada set out more than two years ago how – ‘as a contingency plan only’ – it was ‘building the capacity to issue a retail, cash-like CBDC should the need to implement one ever arise’. But it said that ‘significant work’ was required to achieve such a state of readiness.
‘In the years ahead, the Bank will conduct its work on a CBDC in a transparent manner, with regular consultations with stakeholders at home and abroad and public presentation of conclusions and issues, as they emerge,’ the central bank noted at the time.
Staff at the Ottawa-headquartered authority have been co-researching CBDCs alongside officials at the Fed, Bank of England, Bank of Japan, Sveriges Riksbank (Sweden), Swiss National Bank, the Switzerland-headquartered Bank for International Settlements (BIS) and European Central Bank (ECB). The central banks jointly published an influential report, ‘Central bank digital currencies: foundational principles and core features’, highlighting three ‘key principles’ for a CBDC in October 2020.
As a member of the Group of Seven (G7) nations, Canada was also a contributor to 13 public policy principles for the implementation of retail CBDCs published by the G7 last October. No G7 member (the other G7 nations are the UK, US, France, Germany, Italy and Japan) has committed to launching a CBDC. With its well-progressed trials of its digital yuan, China is global CBDC front-runner among major nations.
Toronto, Canada’s most populous city, is shortly to become home to a new centre of the BIS Innovation Hub, for which CBDCs are a priority topic area. The Innovation Hub Toronto centre will be headed by Miguel Díaz, who joins from a role as general director of payment systems and market infrastructures at the Bank of Mexico.
OpenCBDC aims for engagement
Project Hamilton, which was announced in August 2020, is technology-agnostic and borrowing components from blockchain and cryptocurrency systems, discarding some features of each, to build and test platforms that would give policymakers ‘substantial flexibility’ in designing how a CBDC would work. The project does not aim to create a usable CBDC and is separate exercise from the Federal Reserve Board’s ongoing evaluation of the pros and cons of a potential digital dollar.
The main goal during Project Hamilton’s first phase was to design a core transaction processor (or processing engine) for hypothetical CBDC that met the robust speed, throughput and fault tolerance requirements of a large retail payment system. Initial findings were published last month – including details on the successful test of digital currency architecture capable of handling 1.7 million transactions per second.
With this now achieved, Project Hamilton’s second phase is exploring alternative technical designs and functionality possibilities.
Those running Project Hamilton are looking to collaborate with ‘other technical contributors from a variety of backgrounds’ in an open source repository, OpenCBDC (which is located on GitHub).
OpenCBDC is referenced in MIT DCI’s announcement of its Bank of Canada link-up. ‘As part of OpenCBDC, DCI aims to… engage technologists, user researchers, central bankers, private sector leaders and academics in service of a more accessible, trusted, fair and resilient economy,’ MIT DCI explains.
=>>> Global Government Fintech’s dedicated ‘Digital Currencies’ section <==
‘Boston Fed and MIT release digital currency tech research’ – our news story (15 February) on the initial findings of Project Hamilton