Big Banks and NY Fed’s Innovation Group support digital ledgers for global payments.

Citigroup Inc., HSBC, BNY Mellon, and other global financial giants have been experimenting with a “regulated liability network” for conducting wholesale payments using shared ledgers. A paper released on Thursday suggests that the system has potential.

This network, which falls somewhere between central bank digital currencies (CBDCs) and private stablecoins, has the potential to improve the processing of wholesale payments. It can synchronize U.S. dollar-denominated payments and enable settlement in near-real time, 24 hours a day, 7 days a week.

The Federal Reserve Bank of New York’s New York Innovation Center (NYIC), which has been collaborating on the project since last year, stated that the proof of concept explored tokenized regulated deposits and the potential benefits of central bank and commercial bank digital money operating on a shared ledger. However, the NYIC clarified that it does not endorse the approach, and its work does not reflect the position of the Federal Reserve.

The experimental payment network utilized transactions in commercial bank deposit tokens and settled with hypothetical wholesale CBDCs on the same platform. It also examined the wholesale movement of U.S. dollars across borders. The network addressed issues such as speed, cost, off-hours availability, and the settlement process for payments.

The participating organizations, including Mastercard, PNC Bank, Swift, TD Bank, Truist, U.S. Bank, and Wells Fargo, have not committed to any next steps with the experiment.

Raj Dhamodharan, an executive vice president at Mastercard, described the effort as an exploration of how shared ledger technology and the regulated financial system can deliver dynamic, safe, and efficient payment solutions.

The Federal Reserve is close to launching its long-awaited FedNow real-time payments system in the U.S., which aims to enable immediate clearing of banking customers’ transactions.

UPDATE (July 6, 2023, 17:45 UTC): Adds comment from a Mastercard executive.

Edited by Nikhilesh De.

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