Federal Reserve Bank of New York Issues Report on First Phase of US Wholesale Central Bank Digital Currency (wCBDC) | Practical Law

Federal Reserve Bank of New York Issues Report on First Phase of US Wholesale Central Bank Digital Currency (wCBDC) | Practical Law

The Federal Reserve Bank of New York issued a report covering phase one of Project Cedar, a multi-phase research effort to develop a technical framework for a theoretical US wholesale central bank digital currency (wCBDC) in the Federal Reserve context.

Federal Reserve Bank of New York Issues Report on First Phase of US Wholesale Central Bank Digital Currency (wCBDC)

by Practical Law Finance
Published on 09 Nov 2022 • USA (National/Federal)
The Federal Reserve Bank of New York issued a report covering phase one of Project Cedar, a multi-phase research effort to develop a technical framework for a theoretical US wholesale central bank digital currency (wCBDC) in the Federal Reserve context.
On November 4, 2022, the Federal Reserve Bank of New York's New York Innovation Center (NYIC) issued a report covering phase one of Project Cedar, a multi-phase research effort to develop a technical framework for a theoretical US wholesale central bank digital currency (wCBDC) in the Federal Reserve context. In this first 12-week phase, a prototype for a wCBDC was developed to determine the ability of a distributed ledger technology (DLT), specifically blockchain, to improve the speed, cost, and access to foreign exchange (FX) spot transactions.
FX spot trades are among the most common wholesale cross-border transactions. Generally, it takes about two days for an FX spot transaction to settle, which exposes counterparties to settlement, counterparty, and credit risk. Project Cedar simulated wholesale FX spot transactions and showed that blockchain-enabled cross-border payments result in:
  • Faster payments. On average, transactions on the blockchain-enabled distributed ledger system settled under 15 seconds.
  • Atomic settlement. The risk to counterparties is reduced when both sides of the simulated transaction were settled either simultaneously or not at all.
  • Safe and accessible transactions.
According to the report, the results from the phase one of Project Cedar highlight the need for further research in the areas of:
  • Ledger platform design.
  • Interoperability.
  • Security.
As part of its continued wCBDC research, the NYIC will explore questions related to interoperability and ledger design, including how to accomplish concurrence and best implement atomic transactions across different blockchain-based payment systems. The report states that it is intended to contribute to a broad and transparent public dialogue about a US CBDC from a technical perspective, and that it does not intend to advance any specific policy outcomes.