Federal Reserve Participates In Digital-Dollar Pilot

Citi, HSBC, Mastercard and Wells Fargo are among financial companies collaborating with the New York Fed’s Innovation Center in a proof-of-concept pilot using digital dollar tokens.

The Federal Reserve Bank of New York will participate in a pilot test of a digital dollar to counter the challenge posed by cryptocurrencies such as bitcoin by evaluating the rollout of a central bank digital currency (CBDC).

Citi, HSBC, Mastercard and Wells Fargo are among financial companies collaborating with the New York Fed’s Innovation Center in a 12-week proof-of-concept pilot using digital dollar tokens in a shared database to speed cross-border settlement in currency markets. The test will take place on a digital money platform known as the regulated liability network (RLN) using distributed ledger technology.

As part of the evaluation, the project will explore the feasibility of a network of central bank wholesale digital money and commercial bank digital money on a shared multientity distributed ledger. According to the Fed, the proof-of-concept will also test the feasibility of a programmable digital money design that may be extensible to other digital assets.

“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 US as money and banking evolve,” Per von Zelowitz, director of the New York Innovation Center, said in a prepared statement.

The US lags behind other nations in developing a CBDC, prompting critics to warn that the slow response could undermine US leadership in global financial markets. But the NY Fed cautions against interpreting the test as a shift in strategy.

“It is not intended to advance any specific policy outcome, nor is it intended to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a retail or wholesale CBDC, nor how one would necessarily be designed,” the statement further noted.

The findings of the pilot project will be released after it concludes.

The complete list of financial institutions, payments organizations and advisers involved in the project includes BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, US Bank and Wells Fargo. SETL and Amazon Web Services provide technology. Swift, the global financial messaging service, is also participating. Sullivan & Cromwell and Deloitte will provide legal and advisory services.