A pilot program for a digital dollar on blockchain is launching by U.S. banks

Key points: 

• A group of banking institutions including HBSC, Mastercard, and Wells Fargo announced the launch of a proof-of-concept digital currency platform called the Regulated Responsibility Network. 
• This project is carried out in a test environment and only uses simulated data. 
• Participants will issue simulated digital tokens representing customer deposits and settle them against simulated central bank reserves on a shared blockchain.
• The project will include a regulatory framework that complies with existing regulations, such as KYC and AML requirements.
• They will also test the feasibility of extending the platform to support other digital assets such as stablecoins.

As the cryptocurrency market is shaken by the failure of FTX, traditional financial institutions are taking a step into the world of digital currencies.

A group of banking institutions including HBSC, Mastercard, and Wells Fargo announced on Tuesday the launch of a proof-of-concept digital currency platform called the Regulated Responsibility Network (RLN).

“Members of the U.S. banking and payments community involved in this [proof of concept] are pleased to partner with the New York Innovation Center (NYIC), which is part of the New York Federal Reserve Bank,” the group said in a statement.

According to the group, the platform will use distributed ledger technology, also known as the blockchain, to create opportunities for improved financial processing. It will also attract participation from central banks, commercial banks, and "regulated non-banks," including BNY Mellon, Citibank, PNC Bank, Swift, TD Bank, Truist, and America bank.

In response to the news, exiled whistleblower Edward Snowden simply tweeted, "It's begins."

This tweet is recently deleted.

The potential of central bank digital currencies (CBDCs) has long intrigued bank officials. A CBDC is a digital version of a national fiat currency, similar to a stablecoin pegged 1:1 to a specific fiat currency.

The RLN will run for 12 weeks and will only operate in U.S. dollars, the group said. Participants will issue simulated digital tokens representing customer deposits and settle them against simulated central bank reserves on a shared blockchain.

The group said the project will include a regulatory framework that complies with existing regulations, such as know-your-customer (KYC) and anti-money laundering requirements. They will also test the feasibility of extending the platform to support other digital assets such as stablecoins.

After the project is complete, the group said it will publish the results of the pilot program, adding that participants will not be required to participate in future programs.

"This project was carried out in a test environment and only using simulated data," the group noted. “It is not intended to advance any particular policy outcome, nor to indicate that the Fed will make any imminent decision on the appropriateness of issuing a CBDC to retail or wholesale customers, or how such a decision might take place.”

The United States will not be the first country to try to develop a national digital currency. China has already started working on a digital yuan. In September, Australia continued its digital dollar pilot project using Quorum, a private enterprise variant of Ethereum.