The Federal Reserve and mainstream banking firms are collaborating to test a platform for digital money. The bankruptcy of FTX has rocked the cryptocurrency industry to its very core, yet traditional financial institutions are stepping into the realm of digital money.
The Regulated Liability Network, a proof-of-concept digital currency network, was launched on Tuesday according to a collection of financial organizations that includes HBSC, Mastercard, and Wells Fargo (RLN). The New York Innovation Center (NYIC), a division of the Federal Reserve Bank of New York (1), is thrilled to be collaborating with the American banking and payments industry members on this project, the group stated in a statement. (2)
According to the consortium, the platform would take advantage of chances to enhance financial settlements by using distributed ledger technology, sometimes known as a blockchain. Central banks, commercial banks, and "regulated non-banks," such as BNY Mellon, Citi, PNC Bank, Swift, TD Bank, Trust, and U.S. Bank, would all participate. Whistleblower Edward Snowden, who is in exile, responded to the news by tweeting simply, "It begins."
Why take these measures?
Banking authorities have long been interested in CBDCs, or central bank digital currencies. Like stablecoins, CBDCs are digital representations of a state's fiat currency paired 1:1 with a particular fiat currency. The RLN, according to the organization, will exclusively accept U.S. dollars and run for twelve weeks. Participants will issue fictitious digital tokens representing consumer deposits on a common blockchain and settle with fictitious central bank reserves.
According to the organization, the initiative would have a regulatory framework in line with current laws requiring to know-your-customer (KYC) and anti-money laundering measures. The viability of expanding the platform to include additional digital assets like stablecoins will also be investigated. The organization states that it will make the results of the pilot program public when the study is over but adds that participants are not compelled to participate in subsequent projects.
What will this data be used for?
The organization specifies that this research will be undertaken in a test environment and will solely use simulated data. It is not meant to suggest that the Federal Reserve will decide soon whether to issue a retail or wholesale CBDC or how one should be made nor is it intended to predict any particular policy conclusion. Creating a national digital currency would not be the first endeavor of the United States. A digital yuen is already being developed in China. In September, Australia advanced its pilot program for a digital currency using Quorum, an enterprise-grade, private variation of Ethereum (3) .