NY Fed Says Months-Long Test on Digital Dollar Shows Speed Advantage

A monthslong test with some of the world’s largest banks found that digital dollars could be an effective way to improve domestic and cross-border payments, according to a unit of the Federal Reserve Bank of New York.

The Fed’s New York Innovation Center spent 12 weeks testing a technology known as a regulated liability network, which allows banks to simulate issuing digital money representing their customers’ own funds before settling through central bank reserves on a distributed ledger. The test proved to the Fed that these so-called digital dollars have the ability to improve wholesale payments, and that the use of the ledger didn’t alter the legal treatment of the deposits. “From a central banking perspective, the proof of concept was conducive to exploring tokenized regulated deposits and understanding the potential functional benefits of central bank and commercial bank digital money operating together on a shared ledger,” Per von Zelowitz, director of the New York Innovation Center, said in a statement.