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NY Fed reveals key findings of digital currency research
The Federal Reserve Bank of New York Friday issued a report on Phase I of Project Cedar – the bank’s research effort to study and develop a technical framework for a theoretical wholesale central bank digital currency (CBDC).
NAFCU has consistently opposed the creation of a CBDC, arguing that the costs outweigh the benefits and that credit unions represent a superior and safer alternative for advancing financial inclusion goals and promoting affordable access to payments. The association has shared its concerns with the Fed, Treasury, Commerce Department, and Congress.
NAFCU has told stakeholders that while there is interest in improving cross-border payment speed and efficiency, these efforts are not contingent on the development of a CBDC and are already being advanced through private sector initiatives.
The report’s key findings “showed cross-border payments supported by blockchain technology can deliver faster and safer payments.”
- Faster payments: In the test environment, transactions on the blockchain enabled distributed ledger system settled under 15 seconds on average.
- Atomic settlement: The simulated ledger network enabled atomic settlement – both sides of the simulated transaction were settled either simultaneously or not at all. This greatly reduces the various risks that counterparties incur in the current state environment.
- Safer and accessible transactions: The distributed ledger system design enabled payments on a 24/7/365 basis and supported objectives related to interoperability by enabling transactions across homogeneous ledger networks representing a variety of financial institutions, including central and private sector banks.
The report clarifies “it is not intended to advance any specific policy outcome, nor is it intended to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a retail or wholesale CBDC.” Rather, Project Cedar “aims to contribute to a broad and transparent public dialogue about CBDC from a technical perspective.”
The association will continue to closely monitor the Fed’s efforts on this topic. NAFCU is committed to educating regulators and Congress about the risks of CBDC and how the credit union system is better equipped to improve access to affordable financial services.