New York Fed And Major U.S. Banking Institutions Published Results Of CBDC Trial
The completion of the Regulated Liabilities Network (RLN) proof of concept by the Federal Reserve Bank of New York (NYIC) Innovation Center, in collaboration with nine prominent financial institutions and the Swift network, marked a significant milestone in the world of distributed ledger technology. This project aimed to establish a theoretical framework for exchanging and settling tokens representing commercial bank deposits and central bank liabilities, utilizing a simulated U.S. central bank digital currency (CBDC).
The primary goal of the Regulated Liability Network is to create a unified market infrastructure that could potentially connect thousands of banks globally, along with one or more central banks. This concept aligns with the Bank for International Settlements (BIS) Unified Ledger idea, which has been described as a game changer in the industry.
A notable advantage of the RLN is its ability to update both bank records and fund movements at the central bank simultaneously during interbank payments. This feature enhances efficiency and streamlines the process.
By embracing tokenization and programmable money, the RLN aims to leverage the cost and speed benefits offered by these technologies. While previous bank tokenization initiatives have functioned independently, the RLN’s objective is to establish interoperability among these initiatives.
Although the proof of concept focused on payments within a single currency, future trials may expand to include tokenized assets and multiple currencies, broadening the scope of the RLN’s capabilities.
To achieve its goals, the project deviated from certain blockchain characteristics, such as trust and anonymity. Instead, it designed a system that stores value directly in the ledger, eliminating the need for settlement via messaging. The simulated regulated liability network operated continuously, offering multi-asset settlement and programmability.
The findings and outcomes of the project were documented in separate reports covering technical, business, and legal aspects. Notably, the legal report confirmed that no legal impediments exist under current rules and regulations that would prevent the creation of the RLN system. The project focused exclusively on regulated assets, excluding cryptocurrencies, stablecoins, permission-less blockchains, and retail CBDCs for consideration.
We have not identified any legal issues that would prevent the creation of the RLN system with current rules and regulations… The prospect of a global, instant U.S. dollar payment system that could benefit cross-border settlements merits further serious study. It is important for the regulated financial sector to strongly consider the latest technologies to help ensure that the global, digital economy can flourish in a responsible manner.Tony Mclaughlin, head of emerging payments and business development at Citi Treasury & Trade Solution
Furthermore, the legal workstream found that deposit tokens settled via a distributed ledger should be legally equivalent to conventional deposits, with regulators having a say in matters of development.
The successful completion of the Regulated Liabilities Network proof of concept showcases the potential of distributed ledger technology in revolutionizing the exchange and settlement of financial assets. This achievement sets the stage for further collaboration and development of government-centralized CBDC technology, as stakeholders work together to shape the future of asset transfers and settlements.
The project boasted a lineup of Tier-1 banking participants, including BNY Mellon, Citi, HSBC, Mastercard, The New York Innovation Center at the Federal Reserve Bank of New York, PNC Bank, Swift, TD Bank, Truist, U.S. Bank, and Wells Fargo.