US banks launch a blockchain test for the digital dollar

The bankruptcy of FTX has shaken the cryptocurrency market to its core, but traditional financial institutions are entering the world of digital currency. The Regulated Liability Network, a proof-of-concept digital currency network, launched on Tuesday according to a group of banking organizations that includes HBSC, Mastercard and Wells Fargo (RLN).

The Federal Reserve and mainstream banking firms are collaborating to test a digital currency platform.

The New York Innovation Center (NYIC), a division of the Federal Reserve Bank of New York, is excited to partner with the members of the US banking and payments community on this [proof-of-concept] project, the group states in a statement.

According to the consortium, the platform would take advantage of opportunities to improve financial settlements by using distributed ledger technology, sometimes known as a blockchain. Central banks, commercial banks and “regulated non-banks”, such as BNY Mellon, Citi, PNC Bank, Swift, TD Bank, Truist and US Bank, would all participate.
Whistleblower Edward Snowden, who is in exile, responded to the news by tweeting simply, “It’s starting.”

Banking officials have long been interested in CBDCs, or central bank digital currencies. Like stablecoins, CBDCs are digital representations of a state’s fiat currency that are paired 1:1 with a particular fiat currency.

The RLN, according to the group, will exclusively accept US dollars and run for twelve weeks. On a regular blockchain, participants would issue fictitious digital tokens representing consumer deposits and settle with fictitious central bank reserves.

According to the organization, the initiative will have a regulatory framework that is in line with current laws requiring know-your-customer (KYC) and anti-money laundering measures. The possibility of expanding the platform to include more digital assets such as stablecoins will also be explored. The organization states that it will publish the results of the pilot program after the study is over, but adds that the participants are not forced to participate in subsequent projects.

The organization specifies that “this research will be conducted in a test environment and will exclusively use simulated data.” It is not intended to advance any particular policy outcome or to suggest that the Federal Reserve will soon decide whether to issue a retail or wholesale CBDC or how one will be created, according to the Federal Reserve.

The creation of a national digital currency would not be America’s first attempt. A digital yuan is already under development in China. Australia advanced its digital dollar pilot program in September using Quorum, a private, enterprise-grade version of Ethereum.

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