Federal New York bank Launches Digital Dollar Pilot Program

Nine U.S. financial institutions, including Citibank, Wells Fargo, and Mastercard launched a 12-week pilot program working with the Federal Reserve Bank of New York to test the feasibility of a digital dollar based on distributed ledger technology.

The list of participants in the pilot program includes BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank, and Wells Fargo. Global payments provider Swift is also participating in the effort, along with the New York Innovation Center (NYIC), part of the Federal Reserve Bank of New York.

As part of the project, companies will test the feasibility of an interoperable digital money platform called the regulated liability network (RLN). The U.S. dollar will be represented as tokens and settled through simulated central bank reserves on a shared multi-entity distributed ledger (blockchain technology).

The project is the most significant step to date in creating a digital dollar to improve financial settlements. The Biden administration has recommended the creation of central bank digital currency (CBDC) and the U.S. has recently begun putting resources into the effort.

The U.S. central bank digital currency (CBDC) will be the digital or electronic form of the U.S. dollar issued by the Federal Reserve. This form of digital fiat money will be similar to cryptocurrencies, but the fundamental difference will be that a CBDC will be backed and regulated by the Federal Reserve and act as a legal tender. In other words, the U.S. is beginning to work on creating its own state stablecoin.

Also note that other economies around the world, such as India, China, France, Switzerland and Singapore are also considering implementing their CBDCs.