New York Fed successfully tests bespoke digital asset payment system even though technology already exists
|- The New York Federal Reserve, Citi, HSBC and SWIFT participated in a distributed ledger (DLT)experiment.
- A tokenized form of the US Dollar was used in the experiment, however, it does not endorse the development of a CBDC.
- Stablecoins like USDC and DLT payment systems such as Ripple already exist and have found more use cases outside of the US.
Distributed Ledger Technology (DLT), the underlying tech behind cryptocurrencies, was hailed as bringing greater anonymity, accuracy and security to the process of making a transaction. The US, however, now appears to be straying away from existing options and instead developing its own.
DLT, not crypto, could find adoption in the US
Over the past few months, the New York Federal Reserve’s (NYFR) Innovation Center has run an experiment using DLT. The NYFR called this technology a “regulated liability network” and focused on testing whether banks and other major financial institutions could conduct settlements using digital Dollars without impacting the legal treatment of deposits.
Participating in this experiment were banks such as HSBC, Bank of America, and Citi, along with institutions including Mastercard and payment network SWIFT. Conducted on a private blockchain, the experiment bore successful results.
The outcome could be the development of an easy and effective way to enhance domestic as well as cross-border payments vastly.
Furthermore, the use of a digital dollar increased interest in a potential Central Bank Digital Currency (CBDC). However, the central bank did not present any views on CBDC and noted that the project does not reflect any opinion regarding them.
While the creation of a digital Dollar would not bear any legal trouble, its need is not immediate, thus making its creation rather improbable.
This experiment also demonstrates the United States’ stance regarding the use of crypto at a government level. The technology the New York Fed used in its experiment and the results it was hoping for already exist. The best example of this is Ripple, which has established itself as a competitive payment processor. International immediate settlement is a service adopted by many banks outside of the US.
Similarly, stablecoins such as Tether (USDT), USD Coin (USDC), etc., already exist to serve as an easy medium of transaction. The stable value of these assets prevents any discrepancies in the value of the transaction, making it a suitable option over the development of a digital Dollar.
Institutions in Europe, such as German software giant SAP are also using USDC to test cross-border payments.
Thus, the technology and options the US is testing already exist, but the country’s intolerance toward crypto means it has had to be reinvented. The Securities and Exchange Commission is pursuing a lawsuit against Ripple, which already uses DLT payment technology.
It is a further example of the barriers and hypocrisy inherent in crypto adoption in the US.
Read more - USDC being trialed by German software giant SAP for cross-border payments, revival ahead?
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