NEW YORK–The Federal Reserve Bank of New York and a group of major banks and Mastercard have joined in a test of the use of digital tokens representing digital dollars to improve how central bank money is settled between institutions.
In addition to the Fed bank and Mastercard, participating in the test are Citigroup, HSBC, BNY Mellon and Wells Fargo, along with Mastercard.
According to the participants, the 12-week proof-of-concept pilot program will explore the use of a platform known as the regulated liability network, or RLN, whereby banks issue tokens that represent customers' deposits that are settled on a central bank reserve on a shared distributed ledger.
The project will be conducted in a test environment using only simulated data. In a statement, the Federal Reserve Bank of New York said, “It 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 CBDC, nor how one would necessarily be designed.
Key Aspects
According to the bank, other key aspects of the proof-of-concept include:
- Regulatory framework. “The platform will align with the existing regulatory framework and preserve existing requirements for deposit-based payments processing, notably maintaining know your customer and anti-money laundering requirements.”
- Scope. “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.”
- Tokens. The PoC will simulate tokens that are 100% fungible and redeemable with other forms of money.
- Industry collaboration. “The PoC will include dialogue with the broader U.S. banking community, including community and regional banks.
Results to be Released
Following the conclusion of the PoC, the banking group will publicize the results, which “they hope will be an important contribution to the literature on digital money,” the Fed bank said.
The banking group participants added they are not committed to any future phases of work once the PoC has been completed.