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A High Performance Payment Processing System Designed for Central Bank Digital Currencies

Central banks are increasingly investigating generalpurpose central bank digital currency (CBDC), defined as a currency that is electronic, a liability of the central bank denoted in the national unit of account, broadly available, and used for retail and person-to-person payments [10,11,19,20,24,29,30,45,62,81]. Figure 1 summarizes a figure explaining the different properties of a CBDC as compared to other forms of payment instruments [13]. Researchers have proposed that a CBDC could help address public policy objectives such as ensuring public access to central bank money, fostering payment competitiveness and resilience, supporting financial inclusion, and offering a privacy-preserving digital payment method [4, 10, 20, 52, 84]. A CBDC’s primary use case is to act as a payment instrument for individuals and businesses as part of a broader exchange of goods or services. For example, a user might pay for coffee in a cafe by sending digital currency to the cafe owner. However, beyond this core use case, the design of a CBDC can vary considerably based upon the public policy objectives and unique characteristics of various jurisdictions. Importantly, the feasibility, operating performance and impact of different CBDC design choices are inextricably linked to the technical design of the underlying transaction processor. To better inform policy discussions, central banks are recognizing the importance of technical experimentation in understanding the implications and tradeoffs of different CBDC models and design decisions on possible policy outcomes. The Federal Reserve Bank of Boston (Boston Fed) and the Massachusetts Institute of Technology’s Digital Currency Initiative (MIT DCI) are collaborating on a multi-year exploratory research project, known as Project Hamilton, to gain a hands-on understanding of a CBDC’s technical challenges and opportunities.1 This paper presents the first phase of Project Hamilton’s research and describes the technical design of Hamilton, a research transaction processing system flexible enough to support experimentation with multiple CBDC models.