Several big name financial services companies have joined up with the New York Federal Reserve to announce a 12-week digital dollar program.
The proposed platform will use distributed ledger technology, a decentralized peer-to-peer digital system for recording transactions between parties in multiple places at the same time, according to a statement issued by the participating companies.
The proof of concept (PoC) project will test a version of the regulated liability network design that operates exclusively in U.S. dollars where commercial banks issue simulated digital money or “tokens” – representing the deposits of their own customers – and settle through simulated central bank reserves on a shared multi-entity distributed ledger.
The companies participating in the program include Citigroup (C), HSBC Holdings (HBCYF) , Mastercard (MA), Wells Fargo (WFC), and PNC Financial Services (PNC).
The platform will align with the existing regulatory framework and preserve existing requirements for deposit-based payments processing, notably maintaining customer and anti-money laundering requirements.
The PoC will simulate digital money issued by regulated institutions in U.S. dollars, although the concept could potentially be extended to multi-currency operations and regulated stablecoins.
The PoC will simulate tokens that are 100% fungible and redeemable with other forms of money and will include dialogue with the broader U.S. banking community, including community and regional banks..
Money and Banking Evolve
Per von Zelowitz, director of the Fed's New York Innovation Center, said in a statement that the center "looks forward to collaborating with members of the banking community to advance research on asset tokenization and the future of financial market infrastructures in the U.S. as money and banking evolve."
The New York Fed said the project will be conducted in a test environment and only use simulated data.
The project is not intended to advance any specific policy outcome, nor is it intended to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a retail or wholesale central bank digital currency, or CBDC, nor how one would necessarily be designed.
The findings of the pilot project will be released after it concludes, the New York Fed said.
On November 4, the New York Fed issued a report on the Phase 1 results of the innovation center's Project Cedar, a multiphase research effort to develop a technical framework for a theoretical wholesale central bank digital currency (wCBDC) in the Federal Reserve context.
Michelle Neal, head of the New York Fed's market's group, said on the same day that "the a U.S. CBDC--a digital form of the U.S. dollar that is a direct liability of the Federal Reserve--has the potential to offer significant benefits."
"It could enable a payment system that is more efficient, provide a foundation for further technological innovation, and facilitate faster cross-border transactions," she said in a speech at the Singapore Fintech Festival.
"It could promote financial inclusion and equity by enabling access for a broad set of consumers and foster economic growth and stability," Neal added.
