- In order to test a platform for digital currency, the Federal Reserve and traditional banking institutions are working together. Despite the fact that the FTX bankruptcy has shaken the cryptocurrency sector to its very foundation, traditional financial institutions are entering the world of virtual currency.
The takeoff
According to a group of financial institutions that includes HBSC, Mastercard, and Wells Fargo, the Regulated Liability Network, a proof-of-concept digital currency network, was established on Tuesday (RLN). The American banking and payments sector members are excited to work with the New York Innovation Center (NYIC), a part of the Federal Reserve Bank of New York, on this project, the group said in a statement.
The platform, according to the consortium, will make use of opportunities to improve financial settlements by utilizing distributed ledger technology, also referred to as a blockchain. Participants would include central banks, commercial banks, and “regulated non-banks” like BNY Mellon, Citi, PNC Bank, Swift, TD Bank, Trust, and U.S. Bank. Whistleblower Edward Snowden, who is currently living in exile, tweeted simply “It begins” in response to the news.
Why do these things?
CBDCs, or central bank digital currencies, have long attracted the attention of banking authorities. CBDCs are digital representations of a state’s fiat currency linked 1:1 with a specific fiat currency, similar to stablecoins. The RLN, according to the organization, will last for twelve weeks and only accept US cash. On a shared blockchain, participants will issue fictitious digital tokens that represent consumer deposits and settle with fictitious central bank reserves.
The program would have a legal framework in line with current regulations that demand know-your-customer (KYC) and anti-money laundering measures, the organization claims. It will also be tested whether the platform can be expanded to include more digital assets, such as stablecoins. Although the organization adds that participants are not required to take part in additional projects, it states that it will make the pilot program’s results public after the study is complete.
What purpose will this data serve?
The organization states that this research will only use simulated data and will be conducted in a test environment. It is not intended to imply that the Federal Reserve will decide any time soon whether to issue a retail or wholesale CBDC or how one should be made. It is also not intended to forecast any specific policy outcome. The development of a national digital currency would not be the United States’ first undertaking. China is already working on creating a digital yuen. Australia advanced its digital currency pilot program in September using Quorum, an enterprise-grade, private variant of Ethereum (3).
