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Federal Reserve Initiates Massive New Plan Just Days After Downfall Of Major Cryptocurrency Firm

This past Tuesday, the Federal Reserve Bank of New York kicked off a new initiative for digital currency while working with a series of major banks just as chaos erupts across the larger cryptocurrency sectors.

Slated to be carried out over a period of 12 weeks,  the digital dollar simulation will “experiment with the concept of a regulated liability network,” which is a concept for infrastructure for a financial market that would allow “digital asset transactions that connect deposits held at regulated financial institutions using distributed ledger technology,” as explained in a press release issued by the Federal Reserve Bank of New York. Analysts are expected to test the “feasibility of payments between financial institutions” utilizing tokenized assets.

The previously mentioned other financial groups — Citi, Mastercard, BNY Mellon, and Wells Fargo — are also expected to take part in the simulation and will determine whether or not the project is actually feasible for a full-scale rollout and could result in a series of technical design insights.

This simulation takes place just as legislators discuss the idea of a digital currency from the central bank, which would end up safeguarding the international role of the dollar while helping deal with the standard pitfalls normally associated with cryptocurrencies, like credit risk and liquidity risk, as reported in a release from the Federal Reserve. Something like a digital dollar could be fairly easily privacy-protected, intermediated via digital wallet services put forth by the private sector, and be entirely transferable between people of entirely different intermediaries. necessary identity verification through banks would be in place to try and mitigate money laundering.

Jerome Powell, the chair of the Federal Reserve, claimed this past summer that his “mind is open” to the use of a digital dollar, highlighting that he was “legitimately undecided” on if the “benefits outweigh the costs” of digital currencies from the central bank. “We would want very broad support in society and in Congress,” he explained to legislators. “It’s a very, very important initiative, and I do think we should ideally get authorization.”

Additionally, the central bank is slated to test out a new instant payment service in order to get rid of the need for merchants to wait a period of one to three days prior to payments being deposited, along with the need for employees to wait multiple days prior to getting their paychecks. On average, retailers are paying a $0.23 interchange fee every time a user utilizes a debit card, according to a data set issued by the Federal Reserve, which the brand-new platform would be able to slash quite a bit.


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