FED New York Completes First CBDC Test

The New York branch of the US central bank Fed announced that it has successfully completed a test involving the use of central bank digital currency in cross-border transactions. It was reported that the test involved the exchange of a digital dollar from the USA with experimental currencies from other countries, which are stored on separate blockchains.

Project Cedar, an initial study led by the New York Center for Innovation, aims to explore the key design options and modular specifications of a possible US CBDC. The study focuses on research into security, speed, interoperability, and ledger design.

Phase 1 of the experiment, which has just ended, looked at how blockchain technology could be used to “improve the functioning of cross-border payments.” The experiment, which lasted a total of 12 weeks, was aimed at building a prototype for the CBDC. According to NYIC, the experiment demonstrated that wholesale cross-border digital currency transactions powered by blockchain technology can enable fast and secure payments.

The pilot test greatly improved the average time available for clearing and reconciling transactions from two days to less than 15 seconds. The two-day delay is known to increase counterparty, clearing and credit risks, so improving clearing speed was the primary goal of phase 1.

The test successfully performed payments between a digitized dollar and eight experimental currencies running on separate blockchains at near instantaneous speeds. The project decided to use multiple ledgers for transactions rather than a single ledger with multiple nodes because foreign exchange spot transactions often involve multiple counterparties. NYIC’s future experiments will explore questions of interoperability and ledger design, including how to ensure concurrency between different blockchain-based payment systems and how best to implement atomic transactions.