The New York Innovation Center (NYIC) of the Federal Reserve Bank of New York announced on Tuesday that it would take part in a 12-week Proof-of-Concept project for central bank digital currency (CBDC) in collaboration with commercial banks.
The New York Fed stated in the announcement that the project would “explore the feasibility of an interoperable network of central bank wholesale digital money and commercial bank digital money operating on a shared multi-entity distributed ledger.”
Commercial banks involved in the project include BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank, and Wells Fargo. These banks would issue tokens and settle transactions through simulated central bank reserves.
Per von Zelowitz, Director of the New York Innovation Center, 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,”
This proof-of-concept project is experimenting with the concept of a regulated liability network. It will put distributed ledger technology to the test regarding its technical feasibility, legal viability, and business applicability in settling the liabilities of regulated financial institutions (RLN) through the transfer of central bank liabilities.
The project will be conducted in a test environment using only simulated data.
According to the NYIC, once the project is completed, it will publish a report that includes a summary of the new experiment’s findings. The project, on the other hand, is not intended to endorse any particular policy outcome or influence any decisions regarding the issuance of a retail or wholesale CBDC.
The Federal Reserve Bank of New York, along with many other major banks, has begun testing the use of digital tokens that represent digital dollars to enhance the settlement of central bank funds between institutions.
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