Brainard Says Fed Is Conducting E-Money Tests for Research


The Federal Reserve is conducting experiments with a hypothetical digital dollar for research purposes, though it hasn’t yet committed to issuance that would require a formal policy process involving the government and other stakeholders, Governor Lael Brainard said Thursday.

In addition to the Fed’s own internal work, research teams from the Boston Fed and Massachusetts Institute of Technology are engaged in a “multi-year effort to build and test a hypothetical digital currency oriented to central bank uses,” she said.

Brainard Says Fed Is Conducting E-Money Tests for Research

“Lessons from this collaboration will be published, and any codebase that is developed through this effort will be offered as open-source software for anyone to use for experimentation,” Brainard said, according to the text of her remarks prepared for delivery to a virtual technology event.

James Cunha, the senior vice president at the Boston Fed overseeing the project, said the first stage will be technologists from the reserve bank and MIT working together to build “an engine and the software that can meet the needs” of a digital currency for a country the size of the U.S. There are multiple challenges, Cunha explained, from the sheer volume of transactions to security and privacy.

Cunha said the technologists building the system are “agnostic” on whether the currency is intermediated through banks or not, which he noted is a question for policy makers. “We want want to build it such that everything is possible.”

U.S. central bankers were slow to warm to the idea of a digital currency, but their interest picked up after Facebook proposed its own unit of exchange for its users. Digital money could change the way monetary policy works in the economy, as well as speed up a payment system that remains slow and taxing for consumers and behind many other nations. The Fed is separately developing its own same-day settlement payment system called FedNow.

Brainard said a team of application developers from the reserve banks in Cleveland, Dallas and New York are working with a policy team at the Fed Board in Washington to study “the implications of digital currencies on the payments ecosystem, monetary policy, financial stability, banking and finance, and consumer protection.”

For all the research activity, Brainard cautioned that the Fed “has not made a decision whether to undertake” a significant policy process that explores the legality and feasibility of digital currency with the government and stakeholders.

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