NY Fed and financial firms report success with early digital assets payments

The New York Federal Reserve and several large U.S. banks including Wells Fargo and Citi reported success with an experiment that used distributed ledger technology for domestic and international payments between different financial institutions.

The payments system, referred to as a “regulated liability network,” succeeded in the five areas tested of programmability, privacy, interoperability with other wholesale payments systems, availability at all times of day and week, and speed in settlement.

The proof-of-concept program tested both domestic and international payments between major financial institutions, including the New York Fed and non-bank financial companies.

“In particular, the prospect of a global, instant U.S. dollar payment system that could benefit cross-border settlements merits further serious study," Tony Mclaughlin, a Citi executive tasked with emerging payments and business development, said in the statement from the group about the test. "It is important for the regulated financial sector to strongly consider the latest technologies to help ensure that the global, digital economy can flourish in a responsible manner.”

Large financial participants

Participants included Citi, BNY Mellon, HSBC, PNC Bank, TD Bank, Truist, U.S. Bank, Wells Fargo, Mastercard, the New York Federal Reserve, and the international payments messaging system Swift.

“RLN represents a journey – rather than a destination," Mastercard head of crypto and blockchain Raj Dhamodharan said in a statement. "Working across the ecosystem to address a common problem, we have an opportunity to improve financial settlements at scale for the benefit of the wider payments ecosystem.”

The project used a private distributed ledger using only U.S. dollars. No outside digital assets, including stablecoins, were used in the proof-of-concept program.

The group stressed that the wholesale central bank digital currency used in the experiment does not mean that the Federal Reserve has decided to adopt a central bank digital currency, only that the experiment used a CBDC intended for payment between financial institutions as a proof-of-concept for using the technology between central banks and commercial banks for the large, bank-to-bank payments that frequently occur between them. The project also used retail bank digital deposit tokens.

Though no decision has yet been made as far as next steps, other areas that distributed ledger could include securities like stocks and bonds.