CBDCs are the intersection of fiat currencies and the digital asset industry. Backed by central governments and powered by blockchain technology, they are touted as the future of transacting. As such, central banks around the world are racing to develop, test and launch their CBDC projects. For instance, China is currently in the middle of a vast testing phase, where citizens in select locations can use the e-CNY to pay for various services and products, including public transport.
Yesterday, the Federal Reserve Bank of New York also announced a proof-of-concept project to explore the feasibility of digital money operating on a shared distributed ledger. The project will be carried out under the Fed's New York Innovation Centre (NYIC), with the help of several giants from the traditional banking sector, such as HSBC, Citigroup, Wells Fargo, BNY Melon, PNC Bank, T.D. Bank, Truist and Mastercard. The program aims to test the use of digital tokens and improve how central bank money is exchanged and settled between the various institutions.
As per the NY Fed's official press release from Nov 15, this 12-week proof-of-concept project will "test the technical feasibility, legal viability, and business applicability of distributed ledger technology." The program will operate on a Regulated Liability Network (RLN), where banks issue tokens to represent customer deposits. They will use these tokens to simulate transactions on a shared distributed ledger. If all goes well, the project could also be "extended to multi-currency operations and regulated stablecoins" in the future.
On November 4, the centre also released research findings on its wholesale CBDC program. The program's first phase was called Project Cedar, which aimed to determine whether blockchain technology could improve cross-border wholesale payments. Initial findings indicate that blockchain-enabled payment systems could settle transactions in less than ten seconds and that throughput could be further increased in the future.
"Project Cedar Phase I revealed promising applications of blockchain technology in modernizing critical payments infrastructure, and our inaugural experiment provides a strategic launch pad for further research and development regarding the future of money and payments from the US perspective," said the director of the NYIC, Per von Zelowitz, in a statement.
One day before NYIC's research paper was released, the Monetary Authority of Singapore (MAS) also launched its wholesale CBDC project for cross-border transactions. The project has been named Ubin+, and it aims to test the use of CBDCs for foreign exchange and explore how distributed ledger technology (DLT) could interact with non-ledger payment systems. As part of the Ubin+ program, MAS will also participate in the SWIFT's CBDC Sandbox along with 17 other central and commercial banks. The objective of the sandbox is to test cross-border interoperability.
India is also working on its wholesale CBDC program. A couple of weeks ago, the RBI announced that it would roll out the 'e-rupee' on Nov 1 as part of its pilot programme to test and improve the currency's functionality. Nine banks will participate in the pilot, including the State Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, HSBC, Bank of Baroda, Union Bank of India and IDFC First Bank.
Therefore, it's clear that CBDCs are at the top of the agenda for central banks across the world. The introduction of digital money will bring the benefits of blockchain technology to traditional banking infrastructure. However, most of these projects are still in the testing phase, and it could be a while before they are introduced to the masses.
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(Edited by : Asmita Pant)
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