The Federal Reserve Bank of New York (NY Fed) has announced a 12-week proof-of-concept pilot for a central bank digital currency, or CBDC, to explore the feasibility of a central bank wholesale digital currency and commercial bank digital money.
The NY Fed will collaborate with several banking giants in the pilot, including BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank and Wells Fargo. These institutions will issue tokens and settle transactions through simulated central bank reserves.
In a press release, the NY Fed said the pilot 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.
The distributed ledger being used for this pilot is called regulated liability network (RLN), which is being provided by SETL and Digital Asset, and powered by Amazon Web Services.
SWIFT, the global financial messaging service provider, is also participating in the pilot to support interoperability across the international financial ecosystem.
Per von Zelowit, Director of the NY Fed's New York Innovation Centre (NYIC), said:
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.
The NY Fed also said the project could “potentially be extended to multi-currency operations and regulated stablecoins.” Earlier this month, Michelle Neal, head of the NY Fed's market's group, said it sees promise in using a CBDC to speed up settlement time in currency markets.
The NY Fed's pilot is a significant step toward the use of wholesale CBDCs and distributed ledger technology in the regulated financial system. The pilot follows the release in October of the White House's Comprehensive Framework for Responsible Development of Digital Assets which encouraged the Federal Reserve to continue its ongoing CBDC research, experimentation and evaluation. The United States now joins a growing list of countries piloting a CBDC, including Australia which announced plans to move ahead with a pilot in August.