Financial Titans Collaborate to Create Digital Dollar

Several major financial institutions partnered with the New York Federal Reserve to launch a 12-week digital dollar experiment.

According to a statement by the collaborating companies, the new platform would employ a decentralized peer-to-peer digital system for recording transactions between participants in multiple locations simultaneously.

The proof of concept (PoC) project will put to the test a version of the regulated liability network design that operates in U.S. dollars, with commercial banks issuing simulated digital money or “tokens” – representing their own customers’ deposits – and settling through simulated central bank reserves on a shared multi-entity distributed ledger.

The platform will comply with existing regulatory frameworks and regulations for deposit-based payment processing, including client and anti-money laundering obligations.

The PoC would imitate digital money issued by regulated institutions in U.S. dollars, but the concept may be expanded to multi-currency operations and regulated stablecoins.

The PoC will also include communication with the entire U.S. financial community, including community and regional banks, and will mimic tokens that are 100% fungible and redeemable with other kinds of money.

Citigroup, HSBC Holdings, Mastercard, Wells Fargo, and PNC Financial Services are among the firms involved in the project.

Banking Community Is Included

According to Per Von Zelowitz, director of the Fed’s New York Innovation Center, the center “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 United States as money and banking evolve.”

The outcomes of the pilot experiment will be made public when it is complete, according to the New York Fed.

View days before, on November 4, the New York Fed also released a report on the Phase 1 results of Project Cedar, a multiphase research effort to build a technological foundation for a theoretical wholesale central bank digital currency (wCBDC) in the context of the Federal Reserve.

Michelle Neal, head of the New York Fed’s market group, stated the same day that ” The U.S. CBDC — a digital version of the U.S. dollar that is a direct liability of the Federal Reserve — has the potential to deliver huge benefits. It might enable a more efficient payment system, provide the groundwork for additional technical innovation, and permit speedier cross-border transactions,” she said during a lecture at the Singapore Fintech Festival.

“It has the potential to enhance financial inclusion and fairness by allowing access to a diverse range of customers, as well as generate economic development and stability,” Neal noted.