The Federal Reserve Bank of New York’s Innovation Center (NYIC) has concluded a proof-of-concept project for a regulated liabilities network (RLN) in collaboration with nine major financial institutions and the Swift network. The initiative aimed to develop a theoretical infrastructure using distributed ledger technology (DLT) and a simulated U.S. central bank digital currency (CBDC), enabling the exchange and settlement of commercial bank deposit tokens and central bank liabilities.
Currently, asset transfers rely on messaging among involved parties, which occurs almost instantaneously. However, the actual settlement process takes time. By incorporating DLT into the RLN system, the project sought to expedite settlements by storing value directly on the ledger instead of relying solely on messaging.
To ensure compliance with existing regulations, the simulated RLN preserved key features such as trustlessness, anonymity, and full adherence to Anti-Money Laundering (AML) and Know Your Customer (KYC) standards during international settlements. Tony McLaughlin, head of emerging payments and business development at Citi Treasury & Trade Solutions, emphasized that this groundbreaking solution would benefit users of the dollar worldwide and contribute to maintaining the dollar’s status as the preferred international currency.
The results of the project were documented in separate technical, business, and legal reports. Notably, the legal report confirmed that there were no legal barriers preventing the creation of the RLN system within the current regulatory framework. It is important to note that the project focused specifically on regulated assets and did not consider cryptocurrency, stablecoin, permissionless blockchains, or retail CBDC. The NY Fed clarified that the research did not indicate a definitive decision regarding the introduction of a U.S. CBDC.
The project, initially announced as a 12-week pilot in November, involved participation from BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank, and Wells Fargo. The successful proof of concept demonstrated the potential benefits of tokenized regulated deposits and the synergy between central bank and commercial bank digital money operating on a shared ledger.