NY Federal Reserve and leading banks start 12-week digital dollar pilot

12-week pilot will issue simulated USD tokens settling through simulated central bank reserves on a shared distributed ledger.

Digital USD                                 
The Bahamas and Nigeria have already launched their own digital currencies, and the US is now looking at the concept – Photo:Shutterstock
                                

The United States edged closer to the possible development of a central bank digital currency (CBDC) on Tuesday, when a group of the nation's largest banks announced a 12-week digital dollar pilot with the Federal Reserve Bank of New York. 

The group, which includes Wells Fargo, HSBC, Mastercard and Citigroup, said it will work on a proof of concept project that will examine “the feasibility of an interoperable digital money platform known as the regulated liability network (RLN)”.

The proposed platform will utilise distributed ledger technology to “create innovation opportunities to improve financial settlements and would include participation from central banks, commercial banks of various sizes and regulated non-banks,” the group said.

A version of the RLN will operate exclusively in US dollars, with commercial banks issuing simulated USD tokens and settling through simulated central bank reserves on a shared multi-entity distributed ledger. 

Growing interest in CBDCs

CBDC research and development has exploded around the world in the past four years, spurred on in part by the growth of cryptocurrency assets. 

With these privately issued and theoretically decentralised means of payment growing in popularity, central banks and politicianss have seen CBDCs as a way to adopt the innovations provided by crypto assets while retaining centralised control. 

The Bahamas and Nigeria have already launched their own digital currencies, with India and China currently in the final stages of development. 

Proponents have argued that CBDCs will make fraud harder and payments more efficient. Opponents have raised concerns about privacy, expressing anxiety over the level of insight a state-monitored traceable currency could provide into the lives of individuals. 

The banking group stressed that its members “are not committed to any future phases of work once the [proof of concept] has been completed” and that the study is not intended “to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a retail or wholesale CBDC.”

Nevertheless, the announcement has raised the hackles of opponents of central bank digital currencies, particularly after the statement that the project will “test the feasibility of a programmable digital money.”

Edward Snowden, the CIA whistleblower and privacy campaigner, responding to the news,  simply stated: “It begins.”

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