The Federal Reserve Bank of New York’s Innovation Center (NYIC) has completed its proof-of-concept of a regulated liability network (RLN) in conjunction with nine large financial institutions and the Swift network. The project created theoretical infrastructure to exchange and settle commercial bank deposit tokens and central bank liabilities using distributed ledger technology and a simulated central bank digital currency (CBDC) in the United States.
Asset transfers are currently carried out through messaging along the chain of the parties involved. Messaging takes place almost instantly, but settlement does not, Tony McLaughlin, head of emerging payments and business development at Citi Treasury and Trade Solutions, said in a webinar introducing the project results.
The project abandoned trustlessness and anonymity, among other features, from its blockchain to create a system that contained value in the ledger rather than settling via messaging. The simulated RLN functioned around the clock with multi-asset settlement and programmability, McLaughlin said.
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The simulated RLN preserved full U.S. Anti-Money Laundering and Know Your Customer protections in international settlements, McLaughlin said. He called the RLN “a game changer for international users of the dollar” that would help maintain the dollar’s role as the international currency of choice.
The results of the project were also summed up in separate technical, business and legal reports. The legal report noted, “We have not identified any legal issues that would prevent the creation of the RLN system under current rules and regulations.” Since the project looked at regulated assets, cryptocurrency and stablecoins were not included. Permissionless blockchains and retail CBDCs were not considered either.
The NY Fed included its usual disclaimer about the research not signaling a decision on the introduction of a U.S. CBDC. NYIC director Per von Zelowitz said in a statement:
“From a central banking perspective, the proof of concept was conducive to exploring tokenized regulated deposits and understanding the potential functional benefits of central bank and commercial bank digital money operating together on a shared ledger.”
The project was announced in November as a 12-week pilot. Bank of New York Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank and Wells Fargo took part in the project.
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