Citi, Mastercard, HSBC and the New York Fed’s innovation center (NYIC), which is a part of the Federal Reserve Bank of New York, are some of the bodies that are working together on a proof of concept (PoC) for a regulated digital asset settlement platform. The aim is to explore the feasibility of an interoperable digital currency platform, known as the regulated liability network (RLN).

The PoC project will run for 12 weeks, and test the technical feasibility, legal viability, and business applicability of distributed ledger technology (DLT) to settle the liabilities of regulated financial institutions through the transfer of central bank liabilities.

“The NYIC looks forward to collaborating with members of the banking community to advance research on asset tokenization and the future of financial market infrastructures in the US as money and banking evolve,” said Per von Zelowitz, Director of the New York Innovation Center.

Simulated data

The POC will operate in US dollars only, and the participant banks will issue simulated digital money or tokens, which will represent customers deposits and go through simulated central bank reserves on the shared DLT blockchain. The project will also include a regulatory framework aligned with existing know-your-customer regulations and anti-money laundering requirements.

BNY Mellon, Wells Fargo, PNC, TD Bank, Truist and US Bank are also participating in the experiment. The technology is provided by SETL and Digital Asset, and powered by Amazon Web Services.

“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 group said in a joint statement.

The results of the pilot project will be published later. What is clear however is that experimentation and innovation in this area remains of interest not only to financial institutions, but also to central banks and governments.