Because digital payment systems like Venmo or Apple Pay require the use of bank accounts or credit cards, people without those financial services can’t use such payment systems, either. Nine U.S. financial institutions, including Citibank, Wells Fargo, and Mastercard launched a pilot program working with the Federal Reserve Bank of New York to test the feasibility of a digital dollar based on distributed ledger technology. Many that are interested in digital currency will be aware of JP Morgan’s JPM Coin. While this is tokenized money, it only works for clients with JP Morgan bank accounts. If you had a separate Citi Coin and a Wells Fargo Coin, there’s a good chance they’d use different technologies. If you want to use distributed ledger technology for interbank payments, you will end up with an interoperability challenge.
Supporters of CBDCs say they can help make banking services cheaper, easier, faster and more accessible for all Americans. “I think the Fed doesn’t want to be in the position — and no central bank really wants to be in the position — of beginning to take deposits,” Prasad said. Mario Small, Quetelet Professor of Social Science at Columbia University, said that services often used by unbanked people, such as payday lending, have largely moved online as well. “A CBDC might fill that gap and it might also create more competition, which could bring down the costs of digital payments in the U.S. and provide alternative options,” Prasad said. Earlier this month, France, Switzerland, and Singapore jointly conducted a trial for their digital currencies, one of the first of its kind.
It explored the ability of distributed ledger technology (DLT) to establish connectivity across heterogeneous simulated currency ledgers, reduce settlement risk, and decrease settlement time. The FTX debacle is just the latest and largest in a string of prominent crypto failures. Finance ministries and legislatures around the world are trying to figure out rules that can help rein in the worst actors in the field. But while the regulators get to work, central bankers don’t want to sit on the sidelines.
But the Fed warns that there are risks that might leave customers vulnerable to theft and fraud, despite its understanding of the potential. No doubt there are extensive records of such meetings which could provide considerable fodder for financial historians. However, to our knowledge, none of that considerable effort produced any guidance to the digital asset industry as to how it might develop and market products in a safe and complaint manner or meet the standards being set by federal financial regulators.
A legislative bill has been filed in the state of New York proposing a dollar-based digital currency for its residents. The ‘Inclusive Value Ledger’ initiative is spearheaded by a pair of lawmakers and a Cornell professor. As part of this 12-week project, the NYIC will collaborate with a group of private sector organizations to provide a public contribution to the body of knowledge on the application of new technology to the regulated financial system. Project Cedar aims to contribute to a broad and transparent dialogue related to innovation in the financial sector. Phase I of Project Cedar revealed key questions and highlighted areas for further research, specifically around ledger platform design, interoperability, and security.
Ten members of the banking community are working with the New York Innovation Center (NYIC), which is part of the Federal Reserve Bank of New York, to explore the feasibility of the regulated liability network (RLN) — an interoperable digital money platform. The government could potentially restrict access to funds or credit, implement negative interest rates on cash, collect taxes automatically or eliminate physical cash entirely. The government could also monitor digital transactions and collect data on Americans’ financial activities. Prasad agrees that privacy would be a concern for a digital dollar and said that collecting user data is one of the reasons the Chinese government wanted to issue its own digital currency rather than allow the field to be controlled by private companies. In March 2022, Biden directed the OSTP, in partnership with other institutions, to scrutinize and come up with a viable answer to the question of digital assets and a U.S. The White House placed urgency on creating a digital dollar, outlining plans to guide its creation.
