New York Federal Reserve and US Banks Complete Programmable Dollar CBDC Test

The New York Federal Reserve and a group of financial institutions announced the successful conclusion of a proof-of-concept of the Regulated Liability Network (RLN), which contemplates the introduction of a dollar-based interbank central bank digital currency (CBDC). The test concluded that, using the RLN, the proposed CBDC might allow for near real-time dollar payments and cross-border settlements.

New York Federal Reserve and Bank Working Group Finish Programmable Dollar-Based Wholesale CBDC Test

The New York Federal Reserve and other banks and payment firms have announced the conclusion of a 12-week proof-of-concept test of the Regulated Liability Network (RLN), a system using shared ledger technology to provide programmability to regulated money.

The working group, comprising BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank, and Wells Fargo, examined the performance of a dollar-based wholesale central bank digital currency (CBDC) in different use cases.

The role of the Federal Reserve New York Innovation Center was “limited to the simulated operation of tokenized central bank deposits as a settlement asset,” according to the released report. Furthermore, the document clarifies that this participation is “not intended to advance any specific policy outcome, nor to signal that the Federal Reserve will make any imminent decisions about the appropriateness or design of tokenized central bank deposits or wholesale CBDC.”

Examined Use Cases

One of the use cases for the system had to do with examining the performance of the dollar-based CBDC as a tool to complete domestic interbank payments (such as Fednow), concluding that it “could operate successfully as a payment system on a new technology platform.”

The second use case examined in the proof-of-concept pilot test had to do with using the designed dollar CBDC as an instrument for offshore settlements, finding that its usage could “improve cross-border payments through the orchestration of customer payments and settlements across the payment chain, and the introduction of parallel processing of payment proposals.”

One of the supposed benefits of adopting the proposed system would be the high availability and interoperability of the liquidity stored in the form of CBDC, allowing for 24/7 movements across baking entities of different countries. On this, Isabel Schmidt, co-head of payments products at BNY Mellon, stated:

It is incumbent upon our industry to expand the availability and efficiency of dollars for all our clients across the globe, particularly given the U.S. dollar’s vital role in global payments, trade, and financial markets.

What do you think about the dollar-based wholesale CBDC proof-of-concept test? Tell us in the comments section below.

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