The Federal Reserve Bank of New York’s innovation unit, the New York Innovation Center, recently concluded a series of trials involving the use of digital currency.
The tests, which took place over 12 weeks with some of the world’s leading banks, including Citigroup Inc. and Wells Fargo & Co., sought to evaluate the potential of digital currencies to enhance both domestic and international payment systems.
The trials employed a system known as a regulated liability network.
This technology allows banks to issue virtual currency that represents their customers’ funds, subsequently settling these funds through central bank reserves on a distributed ledger.
The Innovation Center claims digitized dollars could optimize wholesale payments without changing the legal classification of the deposits.
The director of the New York Innovation Center, Per von Zelowitz, shared his perspective on the test, stating, “From a central banking perspective, the proof of concept was conducive to exploring tokenized regulated deposits and understanding the potential functional benefits of central bank and commercial bank digital money operating together on a shared ledger.”
The experiment was conducted on a private, permission-based blockchain, distinct from the public blockchains typically associated with cryptocurrency operations.
The objective was to address various issues plaguing the current financial system, such as the inefficient movement of cash across international borders.
The New York Innovation Center clarified that the project’s findings are not reflective of the viewpoints of the Federal Reserve Board, the Federal Reserve Bank of New York, or any other aspect of the Federal Reserve system.
Though the trials uncovered no “insuperable legal impediments” under current U.S. laws that might obstruct the creation of a digital dollar, the Center acknowledged that further discussions with regulatory authorities would be necessary before drawing any definitive conclusions.
Despite the successful tests, the issuance of a central bank digital currency (CBDC) in the United States is still far from a reality, with some Federal Reserve officials voicing doubts about the necessity for such a currency.
Nevertheless, several banks, including JPMorgan Chase & Co., have indicated their interest in deposit tokens issued on the blockchain, which could potentially outperform stablecoins in terms of usage.
The New York Innovation Center emphasized that the proof-of-concept does not serve to “advance any specific policy outcomes, nor is it intended to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a central bank digital currency, or any other product or service, nor indicate how one would necessarily be designed.”
The traditional method of sending money abroad often proves to be time-consuming and inefficient due to the variety of systems employed by different banks and governments globally.
However, the pilot participants found that the new technology could expedite dollar-denominated payments and enable near-real-time settlements.
Tony McLaughlin, who oversees emerging payments and business development at Citigroup’s treasury and trade solutions division, endorsed the findings.
“We have been greatly encouraged by the business, legal and technical findings,” he said. “In particular, the prospect of a global, instant US dollar payment system that could benefit cross-border settlements merits further serious study.”
Renowned Rich Dad Poor Dad author, Robert Kiyosaki, has voiced his concerns about CBDCs, saying, “The major apprehension with FedCoin, the CBDC, is that it erodes our privacy.”
“By tracking every financial transaction, they will have access to every detail of our spending, the recipient of our money, and how we allocate our resources,” he added. “In essence, it replicates George Orwell’s dystopian society depicted in 1984.”
“Big Brother will be constantly monitoring our financial activity, and this is precisely the problem with central bank digital currency, or the Fed Coin,” he added.
Robert F. Kennedy Jr. (D), a 2024 U.S. presidential contender, echoed the sentiment.
“The Fed just announced it will introduce its ‘FedNow’ Central Bank Digital Currency (CBDC) in July. CBDCs grease the slippery slope to financial slavery and political tyranny,” he said.
“While cash transactions are anonymous, a #CBDC will allow the government to surveil all our private financial affairs,” he went on to say. “The central bank will have the power to enforce dollar limits on our transactions restricting where you can send money, where you can spend it, and when money expires.”
“A CBDC tied to digital ID and social credit score will allow the government to freeze your assets or limit your spending to approved vendors if you fail to comply with arbitrary diktats, i.e. vaccine mandates,” Kennedy continued.
