Centralized Research
The DCI is engaged in collaborative research projects investigating the technical feasibility of CBDCs with several central banking authorities around the world. Current collaborators include the Federal Reserve Bank of Boston (the DCI’s collaborator in Project Hamilton), the Bank of Canada, and the Bank of England.
In addition, the DCI is engaged in collaborative techno-social research with Maiden Labs; this multi-disciplinary work, funded by the Gates Foundation, seeks to center global users in the design of digital currencies and to identify the technical and policy design choices most likely to increase financial inclusion and mitigate harm to the poor.
Many central banks are exploring the creation of a central bank digital currency (CBDC), a new form of central bank money which could be made available to the general public. Central banks, researchers, and policymakers have proposed various objectives including fostering financial inclusion, improving efficiency in payments, prompting innovation in financial services, maintaining financial stability, and promoting privacy. Because the CBDC research process is still in early stages, several technical design questions remain open for investigation, including whether or not a CBDC is even the right way to achieve these goals. The answers to these questions will have meaningful implications and consequences for what options are, or are not, available to policymakers.
The MIT DCI’s interest in CBDC research stems from a desire to ensure that neutral, responsible research is being done on this technology in order to inform policymakers of options. We don’t yet know if a CBDC can help improve our financial system, or how one might be best designed to do that, but we believe engaging in technical research is an important step in answering that question. Building and implementing helps us understand the challenges better, putting us in a unique position to help create designs that emphasize privacy, user agency, and financial equity.
Active Projects and Research
Completed Projects and Research
User Research Focused:
Papers
Read the technical paper, A High Performance Payment Processing System Designed for Central Bank Digital Currencies, and executive summary here.
The Bank of England released a Central Bank Digital Currency (CBDC) Discussion Paper on March 12th, 2020. The DCI curated a response, led by Rob Ali, which explored topics in the paper (June 12th, 2020)
Introduction
In a 2019 speech, Bank of England governor Mark Carney said that “Technology has the potential to disrupt the network externalities that prevent the incumbent global reserve currency from being displaced.” Certainly one of the most interesting places where technology is disrupting payments and finance is in cryptocurrencies. Cryptocurrencies have emerged from open source development communities in large part because electronic transaction systems are too expensive and they have not evolved fast enough to keep pace with the demand for retail online digital payments and more sophisticated types of financial transactions. The wide variety of experimentation in cryptocurrencies is causing technologists and central bankers to rethink the interface to money and explore a digital form which can be held by users and companies directly. This could lead to a financial system with a simplified institutional structure, capable of serving the public at a much lower cost. Though there has been much discussion about the policy design for central bank-issued digital currency (CBDC), there are important technical points missing from the conversation: CBDC should not be a direct copy of existing cryptocurrencies with exactly the same design and features but there are things we can learn from their emergence - the usefulness of programmability in money and the importance of preserving user privacy.
Cryptocurrency technology, in some instances, can provide an important feature: Anyone can participate and build applications with financial transactions to a standard, which creates a free-entry market that enables competition. These rules are set and maintained by users of the system, not by a coalition of companies or other large market participants. This is due in large part to the fact that many participate in observing, auditing, and validating the creation of money and the legitimacy of payments by observing a highly replicated audit trail of activities.
The cryptocurrency ecosystem should be viewed as a laboratory where developers are inventing different technologies, monetary policies, governance strategies, and reward systems which are competing. The space is still in its infancy, but make no mistake -- successful ideas from this area will eventually find their way into the more conservative world of fiat digital payments. Libra and other stablecoins are the latest prominent example of these ideas breaking through. There will be more.
This paper by DCI Reserach Scientist Robleh Ali sets out a structure for a digital fiat currency system. The primary benefit of the cellular structure is that it lowers barriers to entry for payments by using trustless intermediation between cells in the system. The larger purpose of this structure is to create an open foundation for a decentralized financial system in which competition can thrive but which cannot be captured by private interests.
Media
The Bank of England announced an agreement to collaborate on a twelve-month Central Bank Digital Currency (CBDC) research project with MIT Digital Currency Initiative. The agreement supports and builds on DCI’s ongoing research into CBDC, while also contributing to the Bank of England’s wider research and exploration of central bank digital currencies. While no decision has been made on whether or not to introduce a CBDC in the UK, the work will investigate and experiment with potential CBDC technology designs and approaches, and evaluate key tradeoffs, opportunities, and risks. This type of research can help inform wider policy development by contributing important technical ideas and questions.
Today, the Bank of Canada announced an agreement to collaborate on a twelve-month CBDC research project with the MIT Digital Currency Initiative. The agreement supports and builds on the DCI’s ongoing research into CBDC, while also contributing to the Bank of Canada’s wider research agenda into digital currencies and fintech. The work will investigate and experiment with potential CBDC technology designs and approaches, and evaluate key tradeoffs, opportunities, and risks. While no decision has been made on whether or not to introduce a CBDC in Canada, this type of research can help inform wider policy development by contributing important technical ideas and questions.
Collaboration with Federal Reserve Bank of Boston yields progress in understanding how a digital currency might be developed in the future.
CAMBRIDGE, Mass. -- In collaboration with a team at the Federal Reserve Bank of Boston, MIT experts have begun designing and testing technical research through which further examination of a Central Bank Digital Currency (CBDC) can be performed in the U.S.
The effort, known as Project Hamilton, is in an exploratory phase, and the research is not intended as a pilot or for public deployment. Instead, the researchers have explored two different approaches that could be used to process transactions, and thus could indicate the technical feasibility of a potential CBDC model. In a process involving significant design flexibility, the MIT group tested factors such as the volume and speed of transactions, and the resilience of the systems in general, among other requirements for a viable digital currency.
DCI Director Neha Narula co-authored the piece, "Why Central Bank Digital Currencies?" published in the Federal Reserve Bank of New York's Liberty Street Economics
“In the past year, a number of central banks have stepped up work on central bank digital currencies (CBDCs – see map). For central banks, are CBDCs just a defensive reaction to private-sector innovations in money, or are they an opportunity for the monetary system? In this post, we consider several long-standing goals of central banks in their support and provision of retail payments, why and how central banks tackle these issues, and where CBDCs fit into the array of potential solutions.”
Neha Narula was interviewed for Bloomberg Quint on “What is the Future of Money?”. View the video below and read the full interview here
DCI will be collaborating with the Federal Reserve Bank of Boston to build a hypothetical digital currency. We are hiring a software engineer and there will also be opportunities for MIT UROPs and graduate researchers.
Proponents say payments with a digital dollar would be faster and easier. Opponents say it would be costly and inefficient.
The nature of money is changing, and central banks around the world are debating whether they need to change with it.
As electronic payments take off and private cryptocurrencies such as bitcoin seek to gain traction, governments are exploring whether to issue digital versions of their national currencies that could be used as a universal form of payment in the way physical cash is today. These conversations gained urgency for some last year when Facebook Inc.announced plans to launch a cryptocurrency called libra, sparking concern that one of the world’s most powerful technology firms could become even more powerful by operating its own digital money.
So far, few countries have implemented a digital currency, though China reportedly is close and several countries have done or plan tests. Considering the dollar’s key role in global markets, should the U.S. commit to such a project?
Proponents say a digital dollar managed on a single network would facilitate faster, cheaper payments and protect the Fed’s ability to conduct monetary policy in a changing world. Opponents say Fed-controlled digital currency would be costlier and less efficient than many expect, and it would harm privacy by giving government the ability to track all dollar spending.
Neha Narula, the director of the Digital Currency Initiative at the Massachusetts Institute of Technology’s Media Lab, makes the case for digitizing the U.S. dollar. Lawrence H. White, a professor of economics at George Mason University and a senior fellow of the Cato Institute’s Center for Monetary and Financial Alternatives, argues against.
DCI’s Neha Narula was part of a panel ‘Creating a Credible and Trusted Digital Currency’, Forbes reporter Robert Anzalone covers the story in ‘Crypto Thoughts From Davos: Encouraging, But Beware Unintended Consequences’
DCI’s Neha Narula was interviewed by CNBC whilst she was participating at the World Economic Forum in Davos. The article titled ‘Calls for a US ‘digital dollar’ rise as China powers ahead with a digital yuan’ and was published on Jan 23rd 2020.
Cash is gradually dying out. Will we ever have a digital alternative that offers the same mix of convenience and freedom?
by Mike Orcutt Jan 3, 2020
Think about the last time you used cash. How much did you spend? What did you buy, and from whom? Was it a one-time thing, or was it something you buy regularly?
Was it legal?
If you’d rather keep all that to yourself, you’re in luck. The person in the store (or on the street corner) may remember your face, but as long as you didn’t reveal any identifying information, there is nothing that links you to the transaction.
Videos
Neha Narula and Raphael Auer present during the Central Bank Research Association’s (CEBRA) 2021 Annual Meeting.
Disclaimer: All views expressed during CEBRA's 2021 annual meeting are strictly those of the authors, discussants, and other participants and not those of CEBRA, the co‐sponsoring institutions or any other institutions.
CEBRA's 2021 Annual Meeting hosted by the MIT Golub Center for Finance and Policy
This session was organized by the Central Bank Research Association (CEBRA) and the MIT Digital Currency Initiative (DCI).
CBDC Presentations by Raphael Auer and Neha Nerula
Presenters: Raphael Auer (Bank for International Settlements)
“CBDC approaches around the world: trends, drivers, and lessons learned”
Neha Narula (MIT DCI)
"Separation of Roles and Data in a CBDC"
-Cryptocurrencies
-Stablecoins
-Central bank digital currencies
What is the future of money? Neha Narula, Director of Digital Currency Initiative MIT Media Lab, talks to Ira Dugal. #BQLive
Read: https://bit.ly/3qVUkaC
DCI’s Neha Narula is interviewed for CNBC’s “Why Central Banks Want to Get Into Digital Currencies”
“Intense interest in cryptocurrencies, like bitcoin, and the Covid-19 pandemic have sparked debate among central banks on whether they should issue digital currencies of their own. Advocates argue that central bank digital currencies, or CBDCs, can make cross-border transactions easier, promote financial inclusion, and provide payment system stability. Here's how central bank digital currencies could become the future of digital finance.
Intense interest in cryptocurrencies and the Covid-19 pandemic have sparked debate among central banks on whether they should issue digital currencies of their own.
China has been in the lead in developing its own digital currency. It's been working on the initiative since 2014. Chinese central bank officials have already conducted massive trials in major cities including Shenzhen, Chengdu and Hangzhou.
"China's experiment is very large scale," said J. Christopher Giancarlo, former chairman of the U.S. Commodity Futures Trading Commission. "When the world arrives in Beijing next winter for the Winter Olympics, they are going to be using the new digital renminbi to shop and to stay in hotels and to buy meals in restaurants. The world is going to see a functioning [central bank digital currency] very soon, within the coming year."
The U.S. is playing catch-up. In late February 2021, Fed Chairman Jerome Powell said the U.S. will engage with the public on the digital dollar this year.
Advocates contend central bank digital currencies can make cross-border transactions easier, promote financial inclusion and provide payment system stability. There are also privacy and surveillance risks with government-issued digital currencies. And in times of economic uncertainty, people may be more likely to pull their funds from commercial banks, accelerating a bank run.” CNBC’s description
Hear the Fed and MIT discuss technical requirements and potential of CBDCs, the tradeoffs, and the state of CBDC projects.
The rapid rise of digital dollar stablecoins has been paralleled by accelerating interest from central bankers on the role and possibilities of Central Bank Digital Currencies (CBDC). To some in the industry, these are viewed as at odds with one another, to others these are ultimately two sides of the same coin, converging trends that will emerge through broader public sector and private sector collaboration in the coming years and decade ahead.
No matter, everyone seems to agree that digital dollars and digital currency more broadly are the future of electronic money and the broader global financial system. How will these two phenomenon interact, compete or simply just co-exist?
On this week's Money Movement we're joined by Visa's Head of Crypto, Cuy Sheffield; Neha Narula, the Director of MIT's Digital Currency Initiative, an institute leading research and development in crypto, digital currency and now CBDC models; and Robert Bench, AVP at the Federal Reserve Bank in Boston, and a key contributor and collaborator on the future of digital currency with the Federal Reserve.
CBDCs and the Long-Term Advancement of Financial Stability - Nicolas Xuan-Yi Yang - #CryptoEconSys20
Part of the "Theories of Digital Money" session at Cryptoeconomic Systems '20 Conference: https://cryptoeconomicsystems.pubpub....
Central Bank Digital Currencies and the Long-Term Advancement of Financial Stability.
Jeremy Ney (MIT Digital Currency Initiative), Nicolas Xuan-Yi Zhang (MIT - Institute for Data, Systems, and Society)
Paper PDF: https://assets.pubpub.org/la7h52pu/41...
Cryptoeconomic Systems is a forthcoming journal published by The MIT Press exploring the interdisciplinary domain of cryptocurrency and blockchain technology.
https://cryptoeconomic.systems
Neha Narula participated on the panel ‘Creating a Credible and Trusted Digital Currency’ while at the World Economic Forum 2020.
Panel description: “The possibility of a trusted global digital currency has sparked political, economic and regulatory discussions worldwide. What trends are shaping the future of digital currencies?
On the Forum Agenda:
- Addressing financial inclusion
- Implications for security and digital trust
- Role of central banking and supervision”
Neha Narula participates on the panel ‘From Token Assets to a Token Economy’ while at the World Economic Forum 2020. With Jeremy Allaire (Founder and Chief Executive Officer, Circle Internet Financial) and Sheila Warren (Head of Blockchain and Distributed Ledger Technology, World Economic Forum LLC).
Panel Description: “Blockchain tokens are being created that allow real property, corporate securities and other financial assets to be traded on secondary markets. How can tokenization make illiquid assets more accessible without creating new systemic financial risks?
Get ahead of the issues shaping blockchain technology in 2020.”
