Nine U.S. financial institutions, including Citibank, Wells Fargo, and Mastercard launched a pilot program working with the Federal Reserve Bank of New York to test the feasibility of a digital dollar based on distributed ledger technology.
Key Takeaways
- Several U.S. financial institutions are collaborating to test the feasibility of a digital dollar based on distributed ledger technology.
- Participants include BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank, and Wells Fargo. The New York Innovation Center, part of the New York Fed, is also involved.
- The pilot will run for 12 weeks in a test environment and will involve central banks, commercial banks, and regulated non-banks.
Pilot to Use Distributed-Ledger Tech
The project is the most significant step to date in creating a digital dollar to improve financial settlements. The Biden administration has recommended the creation of a digital dollar and the U.S. has recently begun putting resources into the effort. Other countries are also exploring plans to create their own central bank digital currencies (CBDCs).
The proof-of-concept project is a 12-week effort that will test the feasibility of an interoperable digital money platform called the regulated liability network (RLN). It will use a distributed ledger—like the blockchain technology behind bitcoin. The goal is to improve financial settlements and will involve central banks, commercial banks, and regulated non-banks.
The U.S. dollar will be represented as tokens and settled through simulated central bank reserves on a shared multi-entity distributed ledger. The pilot will be conducted in a test environment and will use a technology provided by SETL and Digital Asset.
The list of participants in the pilot program includes BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank, and Wells Fargo. Global payments provider Swift is also participating in the effort, along with the New York Innovation Center (NYIC), part of the Federal Reserve Bank of New York.
China Tests Digital Yuan
Other countries have made headway in digital currency development, most notably China. China has tested its digital yuan in several provinces, and the currency is even available to users on the popular app WeChat. It recently added four provinces to its list of regions for the CBDC trial.
Nigeria also has launched a digital currency, the eNaira. Central Bank of Nigeria (CBN) Governor Godwin Emefiele said it was responsible for more than $9 million in transactions in the past month.
Earlier this month, France, Switzerland, and Singapore jointly conducted a trial for their digital currencies, one of the first of its kind. These cross-border trials are also an important agenda in CBDC development.
The Bottom Line
With the White House recommending the creation of a digital dollar, a major announcement could come as early as next year. Major economies like India are also considering adopting CBDCs. The efforts so far are mainly cautious pilot programs. At the same time, regulators around the world are looking at the regulation of cryptocurrencies.
FAQs
Just a few months after the Biden executive order, the New York Federal Reserve launched a 12-week program using simulated data to test a so-called digital dollar. Supporters of CBDCs say they can help make banking services cheaper, easier, faster and more accessible for all Americans.
Which big banks are going to digital currency? ›
The pilot will test how banks using digital dollar tokens in a common database can speed up payments. Participating banks include BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank and Wells Fargo.
Is the US going to a digital dollar? ›
U.S. President Joe Biden ordered officials to look into a digital dollar in 2022 but it has become a divisive political issue with Biden's Republican rival in this year's U.S. election race, Donald Trump, vowing not to allow it.
Which banks are participating in CBDC pilot? ›
India's Central Bank Digital Currency (CBDC), the Digital Rupee
| Pilot Banks | Name of the App |
|---|
| Axis Bank | Axis Mobile Digital Rupee |
| IndusInd Bank | Digital Rupee by IndusInd Bank |
| PNB | PNB Digital Rupee |
| Federal Bank | Federal Bank Digital Rupee |
9 more rowsKey Takeaways
- Several U.S. financial institutions are collaborating to test the feasibility of a digital dollar based on distributed ledger technology.
- Participants include BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank, and Wells Fargo.
On the heels of the success (i.e., growing adoption) of digital wallets from Apple, Google, and PayPal, some large banks—including Wells Fargo, JPMorgan Chase, and Bank of America—have launched their own digital wallet, Paze, through Early Warning Services, which provides the Zelle person-to-person (P2P) payment tool.
Is America going cashless? ›
It might be said that the US is headed toward a cashless society. Some small businesses have even put up signs saying that they no longer accept cash, another factor that's driving this change. Cash payments can take longer, limit potential sales, and open up businesses to the possibility of an audit.
Will digital currency replace cash? ›
Will a U.S. CBDC replace cash or paper currency? The Federal Reserve is committed to ensuring the continued safety and availability of cash and is considering a CBDC as a means to expand safe payment options, not to reduce or replace them.
Will cash become obsolete? ›
If it's been a long time since you pulled out actual dollars and coins to pay for something — here's a conversation for you. It might seem like cash is slowly becoming obsolete. But, Brett Scott says it's a false narrative that we're all pining for a cashless society.
Is Bank of America moving to digital currency? ›
Central bank digital currencies (CBDCs) are coming, but a digital dollar is unlikely in the near term, Bank of America (BAC) said in a report on Monday.
Citigroup, HSBC, and PNC will also be involved in the effort to create a digital version of U.S. currency.
What does a digital dollar mean? ›
Digital money is any means of payment that exists in a purely electronic form. Digital money is not physically tangible, like a dollar bill or a coin. It is accounted for and transferred using online systems. Digital money generally represents fiat currencies, such as dollars or euros.
What banks are enrolled in the controversial pilot program? ›
The banks in the pilot exercise are Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo. In coming months, the Board will provide additional details on how the exercise will be conducted and the scenarios that will be used in the pilot.
What companies are working on the US digital dollar? ›
The Digital Dollar Project said its initial participants in the program are Digital Asset Holdings, Emtech, Knox Networks and Ripple. Digital Asset Holdings builds distributed ledger products for banks and other financial institutions and names Citi, J.P. Morgan, Nasdaq and Deloitte among its clients.
Which banks are working on digital wallet? ›
Bank of America, Capital One, Chase, PNC Bank, Truist, U.S. Bank, and Wells Fargo, the seven banks that launched peer-to-peer money transfer app Zelle, have set their sights on creating a digital wallet that can hold its own against entrenched players such as PayPal.
Are banks switching to digital money? ›
But over a span of two years, the world's leading central banks have gone from skeptical to serious about a government form of digital currency. When the Atlantic Council's GeoEconomics Center began this project in 2020, thirty-five central banks were exploring a CBDC; as of today, that number is 114.
