NY Fed Launches CBDC Pilot Program

Steven Lofchie Commentary by Steven Lofchie

The Federal Reserve Bank of New York ("NY Fed"), in cooperation with nine major U.S. financial institutions, initiated a 12-week proof-of-concept project to explore the feasibility of a U.S. Central Bank Digital Currency ("CBDC") based on distributed ledger technology. Participants include BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, Swift, TD Bank, Trust, U.S. Bank and Wells Fargo.

The NY Fed stated that the program will be conducted in a simulated environment using a digital token based on the U.S. dollar, and it will simulate settlements through central bank reserves on a shared multi-entity distributed ledger. The NY Fed said that the pilot program does not indicate that it intends to issue either a retail or wholesale CBDC, nor is it intended to advance any specific policy outcome. The NY Fed said that it plans to publish the findings resulting from the program.

Commentary

The combination of (i) a failure to develop a workable regulatory system for digital assets, (ii) ongoing regulatory criticisms of digital asset product failures (which result at least in part from the failure to develop a regulatory system) and (iii) the initiation of a CBDC pilot program serves to amplify a concern, stated previously, that the "administration may be seeking to clear the playing field of potential competitors (i.e., stablecoins) as it paves the way toward issuing a central bank digital currency."

At what point does the government's control of money and transparency into money movements become excessive?

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