Federal Reserve Bank test CBDC

The Federal Reserve Bank of New York and some of the world's largest banks have launched wholesale central bank digital currency tests for payback.

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 CBDCs from this 12-week proof-of-concept trial will not be converted into regular “digital dollars” that can be used for everyday purchases.  Instead, it is limited to financial institutions, according to the Federal Reserve Bank of New York.

 This project is simulated with digital tokens built on distributed ledger technology (DLT).  If they're genuine, they'll be in dollars and - hopefully - be able to complete the transaction in seconds.

 With SWIFT's existing global financial messaging service, this can take days and be very expensive, especially for cross-border transactions - which is why blockchain payment companies are targeted for such payments, and especially remittances.  Between

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 nine major banks participated: BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, US Bank and Wells Fargo.

 The New York Federal Reserve Innovation Center (NYIC), which is leading the proof of concept, said it aims to "test the technical feasibility, legal viability and commercial applicability" of DLT ... to host financial institutions regulated through central authorities.  .  .  bank draft”

 Also participating is global financial messaging service SWIFT, which has been working on blockchain technology to combat competition from cryptocurrencies and stablecoins.

 Driving Platform Innovation

 being tested is an interoperable digital money platform called a Regulated Accountable Network, or RLN, according to statements from 10 participating financial institutions.

 Using DLT, they hope the RLN platform will "create innovation opportunities to improve financial settlement."

 If successful, such a system could also be extended to other digital media.

 Testing also looks at whether the RLN can be implemented within the current regulatory framework.  This means using existing payment processing structures, including KYC and anti-money laundering (AML) requirements.

 As a proof of concept, the RLN design uses US dollars only.  The platform "enables commercial banks to issue simulated digital money or 'tokens' that represent their own customer deposits and pay them to a multi-party ledger that is distributed to central bank simulated reserves," they said.

 The US Federal Reserve sought to clarify that the test does not support any policies or proposals it plans to use to build CBDCs, as the technology has proven politically controversial.