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Testing of “Interoperable Network of Central Bank Wholesale Digital Money” by New York Fed and 9 Major Banks

The Federal Reserve Bank of New York finished the first stage of the digital currency experiment known as “Project Cedar” during the first week of November, according to a report from News. Following “Project Hamilton” by MIT and the Federal Reserve Bank of Boston, the central bank’s New York branch is the second central bank digital currency (CBDC) project. The most recent report on Project Cedar stated that the wholesale central bank digital currency (WCBDC) had demonstrated “instant and atomic settlement” during the testing phase.

A variation of the RLN system that only uses U.S. dollars and issues fictitious digital currency or “tokens” will be tested during the 12-week PoC.

Rust-based software was used for the WCBDC testing, and the distributed ledger is a “permissioned blockchain network” that uses the Unspent Transaction Output (UTXO) transaction model from Bitcoin. The New York Fed and “members of the U.S. financial community” stated they would begin a proof of concept (PoC) for a regulated digital asset settlement platform on November 15, 2022, following the testing’s success. The regulated liability network (RLN), a “interoperable digital money platform,” will be used by the banks to run their POC. According to the news release:

Financial institutions that are taking part in the trial programme include Wells Fargo, Citi, HSBC, Mastercard, BNY Mellon, U.S. Bank, PNC Bank, TD Bank, and Truist. The PoC endeavour is also receiving assistance from Swift and the New York Innovation Center (NYIC). SETL and Digital Asset are providing the technology for the pilot, which makes use of Amazon Web Services. Sullivan & Cromwell LLP will be in charge of the legal services, and Deloitte will provide advisory services for the project.

The head of the Federal Reserve, Jerome Powell, stated in 2021 that he did not believe that the United States lagged behind other countries in the development of CBDCs. We are not behind, in my opinion. Powell remarked at the time, “I think it’s more important to do something well than to do it quickly. A year or so later, Powell discussed the digital currency on a panel and said that, even if the Fed wanted to use a CBDC, it would need the support of Congress and the executive branch.

According to some, the United States is lagging behind other countries like China in the development of CBDC. The People’s Bank of China, the nation’s central bank, developed the CBDC, and it has made a significant push into mainstream venues, moving well past settlement experiments with China’s top banks.

Powell stated at the end of September this year, “We see this as a process of at least a couple of years where we are working and building public confidence in our analysis and in our ultimate conclusion.

The announcement emphasises that the PoC does not intend to result in any policy decisions regarding an official U.S. CBDC launch with regard to the New York Fed’s digital dollar project. The announcement clarifies that the action “is not intended to advance any specific policy outcome, nor is it intended to signal that the Federal Reserve will take any immediate actions regarding the appropriateness of issuing a retail or wholesale CBDC, nor how one would necessarily be designed.”

Per von Zelowitz, the director of the New York Innovation Center, said in a separate statement published by the NYIC that 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.”

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  • Testing of “Interoperable Network of Central Bank Wholesale Digital Money” by New York Fed and 9 Major Banks
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