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This announcement signals the developing interest of the central bank in the blockchain space.
As central banks globally push further in their efforts to roll out a central bank digital currency (CBDC), the New York Fed Bank recently announced a new development on its digital currency project. While some countries are still in the developing stage, others have scaled to the testing phase, while a few have unveiled their CBDCs. The New York Fed Bank recently revealed plans to launch a proof-of-concept pilot for a CBDC, which will run for 12 weeks.
The Federal Reserve Bank of New York’s Innovation Center (NYIC) plans to issue tokens and carry out transactions through simulated central bank reserves. The 12-week program will involve major commercial banks in the United States. They are BNY Mellon (NYSE: BK), Citi (NYSE: C), HSBC (NYSE: HSBC), Mastercard (NYSE: MA), PNC Bank (NYSE: PNC), and TD Bank. Truist (NYSE: TFC), US Bank (NYSE: USB), and Wells Fargo (NYSE: WFC) are also participants in the CBDC program. The New York Fed noted the program would explore the possibility of having an “interoperable network of central bank wholesale digital money and commercial bank digital money operating on a shared multi-entity distributed ledger”. The central bank hopes to have this innovation on a regulated liability network.
Speaking on the upcoming program, the current Director of NYIC, Per von Zelowitz, said:
“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 US as money and banking evolve,” said
This announcement signals the developing interest of the central bank in the blockchain space. The program will experiment with the technical feasibility, legal viability, and business applicability of distributed ledger technology (DLT). Besides this, the program will prove the concepts of simulated tokens and possible regulatory measures. The New York Fed also said the CBDC program could feature multi-currency operations and regulated stablecoins.
Project Cedar: The First Practical Research of New York Fed on CBDC
Earlier this month, the New York Fed released a report about its research on Project Cedar wholesale central bank digital currency (wCBDC). The first phase of the test examined if foreign exchange spot trades can provide a faster, cheaper, and more accessible cross-border payment through blockchain. During a presentation in Singapore, Michelle Neal, the New York Fed Executive Vice President, said the firm intended to launch the use of wCBDC only for financial institutions and not the public. The research proved that blockchain-enabled payments are faster than traditional payments, enabling more currency options. The NYIC’s Project Cedar is synonymous with Project Hamilton. Project Hamilton is a retail CBDC carried out by the Boston Fed in collaboration with MIT’s Digital Currency Initiative.