The inaugural project of the New York Fed’s new innovation centre, Project Cedar is a research effort to develop a technical framework for a theoretical wholesale CBDC.

The first phase of the project simulated a foreign exchange spot trade and introduced a wholesale CBDC prototype to test whether using blockchain technology could improve speed, cost, and access to cross-border wholesale payments.

Currently, it takes two days for most FX spot trades to settle. During this period, payment senders and recipients are exposed to settlement, counterparty, and credit risk which, among other things, can hinder an institution’s ability to readily convert its assets into cash.

The experiment found that payments could be settled in under 15 seconds and that the simulated ledger network enabled atomic settlement, meaning both sides of the transactions were settled either simultaneously or not at all - slashing risks.

In addition, the design enabled payments on a 24/7/365 basis and supported interoperability by enabling transactions across homogeneous ledgers networks representing a variety of financial institutions, including central and private sector banks.

Per von Zelowitz, director, New York Innovation Center, says: "Project Cedar Phase I revealed promising applications of blockchain technology in modernising critical payments infrastructure, and our inaugural experiment provides a strategic launch pad for further research and development regarding the future of money and payments from the US perspective."

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