NY Fed Launches Digital Dollar Pilot Program With Big Banks

Young woman using crypto investment app on smart phone

Oscar Wong / Getty Images

Nine U.S. financial institutions, including Citibank, Wells Fargo, and Mastercard launched a pilot program working with the Federal Reserve Bank of New York to test the feasibility of a digital dollar based on distributed ledger technology.

Key Takeaways

  • Several U.S. financial institutions are collaborating to test the feasibility of a digital dollar based on distributed ledger technology. 
  • Participants include BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank, and Wells Fargo. The New York Innovation Center, part of the New York Fed, is also involved.
  • The pilot will run for 12 weeks in a test environment and will involve central banks, commercial banks, and regulated non-banks. 

Pilot to Use Distributed-Ledger Tech

The project is the most significant step to date in creating a digital dollar to improve financial settlements. The Biden administration has recommended the creation of a digital dollar and the U.S. has recently begun putting resources into the effort. Other countries are also exploring plans to create their own central bank digital currencies (CBDCs).

The proof-of-concept project is a 12-week effort that will test the feasibility of an interoperable digital money platform called the regulated liability network (RLN). It will use a distributed ledger—like the blockchain technology behind bitcoin. The goal is to improve financial settlements and will involve central banks, commercial banks, and regulated non-banks.

The U.S. dollar will be represented as tokens and settled through simulated central bank reserves on a shared multi-entity distributed ledger. The pilot will be conducted in a test environment and will use a technology provided by SETL and Digital Asset.

The list of participants in the pilot program includes BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank, and Wells Fargo. Global payments provider Swift is also participating in the effort, along with the New York Innovation Center (NYIC), part of the Federal Reserve Bank of New York.

China Tests Digital Yuan

Other countries have made headway in digital currency development, most notably China. China has tested its digital yuan in several provinces, and the currency is even available to users on the popular app WeChat. It recently added four provinces to its list of regions for the CBDC trial.

Nigeria also has launched a digital currency, the eNaira. Central Bank of Nigeria (CBN) Governor Godwin Emefiele said it was responsible for more than $9 million in transactions in the past month.

Earlier this month, France, Switzerland, and Singapore jointly conducted a trial for their digital currencies, one of the first of its kind. These cross-border trials are also an important agenda in CBDC development.

The Bottom Line

With the White House recommending the creation of a digital dollar, a major announcement could come as early as next year. Major economies like India are also considering adopting CBDCs. The efforts so far are mainly cautious pilot programs. At the same time, regulators around the world are looking at the regulation of cryptocurrencies.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Business Wire. "Members of the U.S. Banking Community Launch Proof of Concept For A Regulated Digital Asset Settlement Platform."

  2. Vocabulary. "Pilot program."

  3. Chainlink. "What Is Blockchain Interoperability?"

  4. Tech in Asia. "WeChat Tests In-App Digital Yuan Payments."

  5. SCMP. "China Digital Currency: Beijing To Expand E-CNY Trials to Four Entire Provinces Including Guangdong."

  6. African Business. "Nigeria Launches eNaira – Africa’s First Digital Currency."

  7. YouTube. "CBN/AFF eNaira Hackathon Finals."

  8. Reuters. "France, Singapore, Switzerland Jointly Test Central Bank Digital Currencies."

Take the Next Step to Invest
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.