New York Federal Reserve and Banks Successfully Complete Proof-of-Concept for Regulated Liabilities Network using Wholesale Central Bank Digital Currency (wCBDC)

The New York Federal Reserve’s Innovation Center (NYIC) has successfully concluded its proof-of-concept of a regulated liabilities network (RLN) in collaboration with nine major financial institutions and the Swift network. The project focused on establishing theoretical infrastructure for the exchange and settlement of commercial bank deposit tokens and central bank liabilities using distributed ledger technology and a simulated wholesale central bank digital currency (wCBDC) within the United States.

Currently, asset transfers rely on messaging between involved parties, which occurs almost instantaneously. However, settlement processes are not as efficient. Tony McLaughlin, head of emerging payments and business development at Citi Treasury and Trade Solutions, explained during a webinar that settlement lags behind messaging. To address this, the project modified the blockchain, removing features such as trustlessness and anonymity, and instead created a system where value is stored directly on the ledger, facilitating efficient settlement. The simulated RLN operated continuously, offering multi-asset settlement capabilities and programmability.

McLaughlin highlighted that the simulated RLN maintained full compliance with U.S. Anti-Money Laundering and Know Your Customer regulations in international settlements. He referred to the RLN as a “game changer” for global users of the U.S. dollar, which would contribute to preserving the dollar’s status as the preferred international currency.

The project outcomes were summarized in separate technical, business, and legal reports. The legal report concluded that no legal obstacles were identified that would hinder the creation of the RLN system under current rules and regulations. As the project focused on regulated assets, cryptocurrencies and stablecoins were not included. Permissionless blockchains and retail central bank digital currencies were also not considered.

The NY Fed emphasized that the research did not imply a decision regarding the introduction of a U.S. central bank digital currency (CBDC). Per von Zelowitz, director of the NYIC, stated in a release:

“From a central banking perspective, the proof of concept was conducive to exploring tokenized regulated deposits and understanding the potential functional benefits of central bank and commercial bank digital money operating together on a shared ledger.”

The project was initially announced as a 12-week pilot in November, and it involved the participation of Bank of New York Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank, and Wells Fargo.

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