NY Fed launches 12-week CBDC pilot program with major banks

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The Fed­er­al Reserve Bank of New York’s Inno­va­tion Cen­ter, or NYIC, announced that it would be launch­ing a 12-week proof-of-con­cept pilot for a cen­tral bank dig­i­tal cur­ren­cy, or CBDC.

In a Nov. 15 announce­ment, the New York Fed said the pro­gram would explore the fea­si­bil­i­ty of an “inter­op­er­a­ble net­work of cen­tral bank whole­sale dig­i­tal mon­ey and com­mer­cial bank dig­i­tal mon­ey oper­at­ing on a shared mul­ti-enti­ty dis­trib­uted ledger” on a reg­u­lat­ed lia­bil­i­ty net­work. Bank­ing giants includ­ing BNY Mel­lon, Citi, HSBC, Mas­ter­card, PNC Bank, TD Bank, Tru­ist, U.S. Bank and Wells Far­go will be par­tic­i­pat­ing in the pilot by issu­ing tokens and set­tling trans­ac­tions through sim­u­lat­ed cen­tral bank reserves.

“The NYIC 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,” said NYIC direc­tor Per von Zelowitz.

The proof-of-con­cept project will test “tech­ni­cal fea­si­bil­i­ty, legal via­bil­i­ty, and busi­ness applic­a­bil­i­ty” of dis­trib­uted ledger tech­nol­o­gy, as well as sim­u­late tokens, and explore reg­u­la­to­ry frame­works. The NY Fed said the project could “poten­tial­ly be extend­ed to mul­ti-cur­ren­cy oper­a­tions and reg­u­lat­ed stablecoins.”

Relat­ed: US law­mak­er lays out case for a dig­i­tal dollar

The launch of the NYIC pilot project fol­lowed the cen­ter releas­ing research on its whole­sale cen­tral bank dig­i­tal cur­ren­cy pro­gram on Nov. 4. The first phase of the CBDC tri­al, dubbed Project Cedar, test­ed for­eign exchange spot trades to deter­mine whether a blockchain solu­tion could improve “speed, cost, and access to cross-bor­der whole­sale payments.”

Fed­er­al reg­u­la­tors in the Unit­ed States have not reached any con­sen­sus on whether to launch a dig­i­tal dol­lar in the coun­try, but agen­cies and those in the pri­vate sec­tor have been explor­ing the pos­si­bil­i­ty. Fol­low­ing U.S. Pres­i­dent Joe Biden issu­ing an exec­u­tive order aimed at estab­lish­ing a frame­work on dig­i­tal assets, some law­mak­ers ques­tioned what Con­gress’ role might be in pass­ing leg­is­la­tion in sup­port of a CBDC, and how a dig­i­tal dol­lar might cur­tail sim­i­lar inno­va­tions from the pri­vate sector.

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