Members of the US banking community have launched a proof of concept (PoC) project that will explore the feasibility of an interoperable digital money platform known as the regulated liability network (RLN). Using distributed ledger technology (DLT), the proposed platform will be meant to create innovation opportunities to improve financial settlements and would include participation from central banks, commercial banks of various sizes, and regulated non-banks.

The 12-week PoC will test a version of the RLN design that operates exclusively in US dollars where commercial banks issue simulated digital money or ‘tokens’ – representing the deposits of their own customers – and settle through simulated central bank reserves on a shared multi-entity distributed ledger. The PoC will also test the feasibility of a programmable digital money design that is potentially extensible to other digital assets, as well as the viability of the proposed system within existing laws and regulations, the official press release states. Members of the US banking and payments community involved in this PoC have partnered with the New York Innovation Centre (NYIC) which is part of the Federal Reserve Bank of New York.

The NYIC collaborates with the private and public sectors on developing innovations aimed at improving the functioning of the global financial system and the ability of central banks to carry out their missions, the press release continues. In addition to the NYIC, the other participants in this project include the following financial institutions and payments organisations: BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, US Bank, and Wells Fargo. The technology is being provided by SETL with Digital Asset, powered by Amazon Web Services.

Swift, the global financial messaging service provider, is also participating in the initiative to support interoperability across the international financial ecosystem. Legal services are being provided by Sullivan & Cromwell LLP and Deloitte will be providing advisory services. Other key aspects of the PoC Regulatory framework: The platform will reportedly align with the existing regulatory framework and preserve existing requirements for deposit-based payments processing, notably maintaining Know Your Customer (KYC) and anti-money laundering (AML) requirements.

Scope: The PoC will simulate digital money issued by regulated institutions in US dollars, although the concept could potentially be extended to multi-currency operations and regulated stablecoins. Tokens: The PoC will simulate tokens that are 100% fungible and redeemable with other forms of money. Industry collaboration: The PoC will include dialogue with the broader US banking community, including community and regional banks.

Results: Following the conclusion of the PoC, the banking group will publicise the results, which they hope will be an important contribution to the literature on digital money. Future plans: The banking group participants are not committed to any future phases of work once the PoC has been completed. This project will be conducted in a test environment and only use simulated data.

It is not intended to advance any specific policy outcome, nor is it intended to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a retail or wholesale CBDC, nor how one would necessarily be designed. The findings of the pilot project will be released after it concludes. .