Global banking giants are starting a 12-week digital dollar pilot with the Federal Reserve Bank of New York, the participants announced on Tuesday. This is a very Public Announcement, about a very private (old boys network only) pilot program funded by the Tax Payer.
Citigroup Inc, HSBC Holdings Plc (HSBA.L), Mastercard Inc (MA.N), and Wells Fargo & Co (WFC.N) are among the financial companies participating in the experiment alongside the New York Fed’s innovation center, they said in a statement.
“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 Per von Zelowitz, Director of the New York Innovation Center.
The project, which is called the regulated liability network, will be conducted in a test environment and use simulated data. The pilot will test how banks using digital dollar tokens in a common database can help speed up payments. Earlier this month, Michelle Neal, head of the New York Fed’s market group, said it sees promise in using a central bank digital dollar to speed up settlement time in currency markets.
With the development of blockchain and digital currencies, central banks all over the world are accelerating the process of CBDC development. However, it is still controversial to the adoption of blockchain in CBDC design. A recent paper analyzed both functional and non-functional requirements of CBDC design and published a literature review on blockchain-based CBDC schemes. Analysis findings show that permission blockchain is more suitable for CBDC than permissionless blockchain. Besides, there are some challenges in blockchain-based CBDC, such as performance, scalability, and cross-chain interoperability. I believe this analysis is timely and can provide guidelines for blockchain-based CBDC design.
CBDCs can be categorized as wholesale and retail CBDCs by usage scenarios. Retail CBDC is a digital version of cash and is mainly used for payments among individuals and businesses. Retail CBDC can increase access and usability for users, reduce costs for e-commerce and cross-border payments, and help to enhance monetary policy.
Wholesale CBDC is a new infrastructure for inter-bank settlements, such as payments between banks and other entities that have a direct relationship with the central bank. Wholesale CBDC can improve inter-bank payment settlement, and reduce risks and costs of cross-border payment transactions.
This U.S. proof-of-concept project is experimenting with the concept of a regulated liability network. It will test the technical feasibility, legal viability, and business applicability of distributed ledger technology to settle the liabilities of regulated financial institutions through the transfer of central bank liabilities.
We should all follow this group as they move forward. The question is, will this pilot provide transparency?
The jury is out, but I am gonna say, probably not.
Michael Noel CBP
AKA Biz Builder Mike
eschew obfuscation, espouse elucidation