While the cryptocurrency market is rocked by the FTX failure, traditional financial institutions are making a move into the world of digital currency.
A group of banking institutions, including HBSC, Mastercard and Wells Fargo, announced on Tuesday the launch of a conceptual digital money platform called the Regulated Liability Network (RLN).
“Members of the US banking and payments community participating in this [proof-of-concept] are pleased to work with the New York Innovation Center (NYIC), which is part of the Federal Reserve Bank of New York,” the group said in a statement.
According to the group, the platform will use distributed ledger technology, better known as blockchain, to create opportunities for improved financial settlement. It will also include central banks, commercial banks and “regulated non-banks” including BNY Mellon, Citi, PNC Bank, Swift, TD Bank, Truist and US Bank.
In response to the announcement, whistleblower-in-exile Edward Snowden simply tweeted, “It’s starting.”
The potential of central bank digital currencies, or CBDCs, has long been of interest to banking officials. CBDCs are digital versions of a state’s fiat currency, similar to stablecoins, pegged to a specific fiat currency at a 1:1 ratio.
The group states that the RLN will operate for twelve weeks and will operate in US dollars only. Participants will issue simulated digital tokens representing customer deposits and settle with simulated central bank reserves on the shared blockchain.
The group says the project will include a regulatory framework that is in line with existing regulations such as know-your-customer (KYC) and anti-money laundering requirements. They will also test the possibility of expanding the platform to support other digital assets such as stablecoins.
After the completion of the project, the group says it will publish the results of the pilot program, adding that participants are not required to participate in future initiatives.
“This project will be conducted in a test environment and will only use simulated data,” the group notes. “It is not intended to advance any particular policy outcome, nor is it intended to signal that the Federal Reserve will make any imminent decisions about whether retail or wholesale CBDCs are appropriate or how they will necessarily be developed.” .
The United States will not be the first to try to develop a national digital currency. China has already begun work on a digital yuan. In September, Australia launched its digital dollar pilot using a private, enterprise-grade variant of Ethereum known as Quorum.
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