In order to determine whether or not the digital dollar might be successfully implemented, the Federal Reserve Bank of New York as well as other large institutions have decided to conduct a feasibility study that will last for three months.
On Tuesday, the plan was launched by the local bank that is part of the Federal Reserve system as well as by nearly a dozen other financial institutions. In a press release, the experiment was referred to as a “proof-of-concept project.” During the experiment, the banks will collaborate with the Fed’s Nyc Innovation Center to simulate digital money trying to represent the deposits of their own clients and settle them through simulation model Fed reserves on a distributed ledger. This will be done in order to test the feasibility.
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According to the press release, “The [project] also would test the viability of a computer-controlled digital money configuration that is potentially highly configurable to other digital assets. Additionally, the [project] will test the viability of the proposed system within the context of existing laws and regulations.”
The announcement comes at a time when blockchain technology and cryptocurrencies like bitcoin have skyrocketed in popularity in the mainstream financial sector. Even though the value of the most well-known cryptocurrency, bitcoin, reached its all-time high a year ago and has been in a steady decline ever since, the technology that underpins such tokens has garnered interest not only from private financial institutions but also from central banks all over the world.
The Federal Reserve made the first move toward investigating the possibility of a central bank-issued digital currency in January when it published its long-awaited discussion paper and initiated a public comment period that would last for four months. This marked the beginning of the Fed’s investigation into the possibility of such a currency.
According to the report, a CBDC has the potential to make international payments more streamlined and has the potential to further codify and sustain the supremacy of the dollar’s international position, including as the reserve currency of the world.
After the completion of the pilot project’s test period of twelve weeks, the results of the new pilot project will be made public. The Federal Reserve has emphasized that the experiment is not intended to advance any specific policy outcome or hint that the Fed is planning to make any significant decisions about a central bank digital currency in the near future. However, the Fed has emphasized that the experiment is intended to test the viability of the central bank’s digital currency.
Nevertheless, the initiative is certain to thrill supporters of a digital dollar since it demonstrates that the central bank is involved with the notion to the extent that it is willing to collaborate with commercial institutions and undertake tests about the practicality of the concept. Despite this, some people have expressed concern that using digital money that is managed by the government might result in a breach of privacy.
“The NYIC looks forward to cooperating with representatives of the banking community to progress research on investment tokenization or the future of financial market infrastructures in the United States as money and banking evolve,” said Per von Zelowitz, head of the New York Innovation Center. “The NYIC looks forward to collaborating with members of the financial sector to advance research on asset tokenization and also the future of global financial infrastructures in the United States.”