Programmable digital dollars are coming
The New York Innovation Center will study the feasibility of a theoretical payment system designed to facilitate and settle digital asset transactions.
Global banking giants are launching a 12-week digital dollar (CBDC) pilot with the Federal Reserve Bank of New York, according to a statement from the New York Fed.
Citigroup, HSBC Holdings, Mastercard and Wells Fargo are among the financial firms participating in the experiment alongside the New York Fed, which will make a “public contribution to the body of knowledge about the application of new technologies to the regulated financial system.”
The Bank of New York Mellon, the global anti-money laundering bank, HSBC Holdings, PNC Financial Services, Toronto-Dominion Bank, Truist Financial and US Bancorp are also participating in the test, along with the Mastercard payment network.
Called the Regulated Liability Network, the project allows banks to simulate the issuance of digital currencies representing their customers’ equity before settling them through central bank reserves on a distributed ledger, the New York Fed said.
The pilot project will test how banks using digital dollar tokens in a common database can help speed up payments.
“Programmable US Digital Dollars (CBDCs) may be needed to support new business models and provide a foundation for much-needed innovations in financial settlement and infrastructure,” said Tony McLaughlin, general manager of emerging payments and business development at treasury and commerce solutions. division of Citigroup. “Projects like this, which focus on digitizing central bank money and individual bank deposits, could be expanded to take a broader view of the opportunity. »
Earlier this month, Michelle Neal, head of the New York Fed’s market group, said using a central bank digital dollar (CBDC) to speed up settlement times in foreign exchange markets was a promising clue.
For years, Wall Street’s top banks have explored the use of blockchain in their businesses for everything from interbank payments to mortgages and cross-border transactions. But this week’s move comes amid defeat in cryptocurrency markets following the collapse of Sam Bankman-Fried’s (FTX) digital asset empire last week.
In addition to balancing CBDC and compliant stablecoins, “there should be the opportunity to leverage the scale and economic value of bank deposits,” said Raj Dhamodharan, head of crypto and blockchain at MasterCard. The Regulated Accountability Network “is an innovative industry-led proof of concept that could help shape how consumers and businesses perceive the credibility of token-based payments. »
The new network is expected to comply with applicable laws and regulations for processing deposit-based payments, including anti-money laundering requirements. After the 12-week test, banks will release the results, the statement said, though lenders “will not commit to future phases of work” once the test is complete.
Initial work will focus on simulating digital currencies issued by US dollar-regulated institutions, but the concept could be expanded to multi-currency and stablecoin operations, typically backed by another asset such as dollars or euros.