The New York Federal Reserve, in cooperation with various financial establishments, recently announced the successful completion of a proof-of-concept trial for the Regulated Liability Network (RLN). This test was aimed at introducing a central bank digital currency (CBDC), primarily focused on dollar-based interbank transactions. According to the findings, the RLN could allow for immediate dollar transactions and cross-border settlements with the use of the proposed CBDC.

New York Federal Reserve and Banking Consortium Successfully Complete Dollar-Based Wholesale CBDC Experiment

The New York Federal Reserve, in collaboration with numerous banks and payment firms, reported the completion of a 12-week proof-of-concept trial for the Regulated Liability Network (RLN). This system utilizes shared ledger technology to impart programmability to regulated currency.

The consortium, which included BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank, and Wells Fargo, assessed the performance of a dollar-based wholesale central bank digital currency (CBDC) across various scenarios.

According to the report, the involvement of the Federal Reserve New York Innovation Center was “restricted to the simulated operation of tokenized central bank deposits as a settlement asset.” It further explained that this participation “doesn’t imply the pursuit of any specific policy outcome or signal that the Federal Reserve will soon decide on the feasibility or design of tokenized central bank deposits or wholesale CBDC.”

Investigated Use Cases

The RLN’s utility for domestic interbank payments (like Fednow) was one of the evaluated use cases. The test concluded that it “could successfully operate as a payment system on a new technology platform.”

Another scenario examined in the proof-of-concept trial involved the proposed dollar CBDC being used for offshore settlements. It suggested that the CBDC’s application could “enhance cross-border payments via customer payment orchestration and settlements across the payment chain, along with the introduction of parallel processing of payment proposals.”

A significant advantage of implementing the proposed system would be the high accessibility and compatibility of the liquidity in the form of CBDC. This would facilitate 24/7 transactions across banking entities from various countries. Regarding this, Isabel Schmidt, co-head of payments products at BNY Mellon, commented:

Given the crucial role the U.S. dollar plays in global payments, trade, and financial markets, it’s our responsibility to ensure wider availability and efficiency of dollars for all our clients worldwide.

We’d love to hear your thoughts on the dollar-based wholesale CBDC proof-of-concept trial. Feel free to share your opinions in the comments section below.

Frequently Asked Questions (FAQs) about Central Bank Digital Currency (CBDC)

What is the Regulated Liability Network (RLN)?

The Regulated Liability Network (RLN) is a system that uses shared ledger technology to provide programmability to regulated money. It’s the platform on which the proof-of-concept for a programmable dollar-based Central Bank Digital Currency (CBDC) was tested.

Who were the participants in the proof-of-concept trial?

The participants included the New York Federal Reserve, BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank, and Wells Fargo. They constituted a consortium to test and evaluate the dollar-based wholesale CBDC.

What were the evaluated use cases for the CBDC?

Two primary use cases were evaluated: one examined the performance of the dollar-based CBDC for domestic interbank payments (like Fednow), and the second focused on using the dollar CBDC as an instrument for offshore settlements.

What benefits could the adoption of the proposed CBDC system provide?

Adopting the proposed CBDC system could result in high availability and interoperability of liquidity in the form of CBDC, enabling 24/7 transactions across banking entities from different countries. It could also enhance the efficiency of cross-border payments and settlements.

What was the role of the Federal Reserve New York Innovation Center in this trial?

The Federal Reserve New York Innovation Center’s involvement was confined to the simulated operation of tokenized central bank deposits as a settlement asset. The participation wasn’t meant to advocate for any specific policy outcome or signal any imminent decisions regarding the tokenized central bank deposits or wholesale CBDC.

More about Central Bank Digital Currency (CBDC)

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5 comments

GeorgeL July 8, 2023 - 5:27 pm

A little concerning to see such a major shift in our financial system. The implications could be far-reaching. let’s hope they thought this through.

Reply
Susan_Expert July 8, 2023 - 9:32 pm

Finally some real innovation in the banking industry. This could potentially make cross-border payments so much easier. long overdue if you ask me.

Reply
FinTechGuru July 9, 2023 - 2:25 am

Not sure how i feel bout this…digital currency from the Feds? Seems a bit fishy to me.

Reply
Jess_MoneyMatters July 9, 2023 - 5:37 am

Intriguing! The future of money is digital, and it seems the major players are finally catching up. Can’t wait to see how this shapes up.

Reply
CryptoFan21 July 9, 2023 - 2:06 pm

Is it just me or does anyone else feel like the Feds are late to the party? Crypto’s been around for ages now…

Reply

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