Nine major financial institutions and the Federal Reserve Bank of New York have started to experiment with a digital dollar proof of concept to see if distributed ledger technology can improve settlement between central banks, commercial banks, and regulated non-banks. The New York Fed details that the proof of concept will be done in a test environment and it will only leverage simulated data. The central bank’s New York branch further insists that the test is “not intended to advance any specific policy outcome.”
New York Fed Reveals 12-Week Proof of Concept to Test the Banks’ Regulated Liability Network
During the first week of November, Bitcoin.com News reported on the Federal Reserve Bank of New York completing the first phase of the digital dollar experiment called “Project Cedar.” The central bank’s New York branch is the second central bank digital currency (CBDC) project following MIT’s and Federal Reserve Bank of Boston’s “Project Hamilton” project. The last report concerning Project Cedar said the first phase of the testing had shown the wholesale central bank digital currency (WCBDC) showcased “instant and atomic settlement.”
The WCBDC testing utilized software developed in the programming language Rust, and the distributed ledger is a “permissioned blockchain network” that borrows BTC’s Unspent Transaction Output (UTXO) transaction model. Following the successful testing, the New York Fed and “members of the U.S. banking community” announced launching a proof of concept (PoC) for a regulated digital asset settlement platform on Nov. 15, 2022. The banks’ PoC will be operated on an “interoperable digital money platform known as the regulated liability network (RLN).” The press release states:
The 12-week PoC will test a version of the RLN design that operates exclusively in U.S. dollars where commercial banks issue simulated digital money or ‘tokens.’
The pilot program’s list of financial institutions participating includes Wells Fargo, Citi, HSBC, Mastercard, BNY Mellon, U.S. Bank, PNC Bank, TD Bank, and Truist. The New York Innovation Center (NYIC) and Swift are also lending a hand in the PoC effort. The pilot is leveraging Amazon Web Services and the technology is being provided by SETL and Digital Asset. The legal services will be handled by Sullivan & Cromwell LLP and the project will utilize Deloitte for advisory services.