Think tank launches ‘tech sandbox’ exploring CBDCs in the US

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A U.S. think tank has launched a “technical sandbox” aimed at advancing exploration of a possible U.S. central bank digital currency (CBDC).

In a Wednesday tweet from the Digital Dollar Project (DDP), the organization said the new program explore “technical and commercial implementation” issues regarding a U.S. CBDC.

The organization noted that early participants in the sandbox include crypto company Ripple, fintech company Digital Asset, software platform Knox Networks, and banking solutions company EMTECH.

The Technical Sandbox program aims to give the federal government, policymakers, and the private sector a better understanding of how a potential CBDC would be deployed.

This includes potential implications for retail and wholesale and international use cases such as cross-border payments.

The US Federal Reserve has yet to decide whether or not it will implement a CBDC, but has explored the potential risks and benefits that come with it.

On Jan. 20, it released a discussion paper examining the pros and cons of CBDCs, but failed to provide guidance on its future plans.

The paper suggests that CBDCs could act as a digital currency free from credit and liquidity risk, improve cross-border payments, help preserve US dollar dominance, promote financial inclusion, and expand public access to currency. security from the central bank.

Potential risks uncovered included an altered US financial system, harsher bank runs for other forms of money, reduced monetary policy power, operational resilience, and a difficult balance between transparency and protecting human rights. consumer privacy.

Meanwhile, China’s own CBDC, the digital yuan, is rapidly rolling out across the country, while the same is happening in Nigeria with eNaira. The Bahamas and Eastern Caribbean Currency Union countries have also launched CBDCs, while Russia is expected to roll out its own in 2024.

FedNow, an instant payment service expected to launch in mid-2023, aims to begin “technical testing” in September, according to a press release on Monday. FedNow is seen as a step towards an eventual CBDC.

Alexandra Steinberg Barrage, partner at Davis Wright Tremaine LLP, a former FDIC policy expert, tweeted her support for the program on Wednesday. Barrage suggested that regardless of your opinion of a US CBDC, pilot programs and data are key when evaluating new technology.

The Technical Sandbox program is expected to begin in October, with cross-border payments being the initial focus for early entrants.

The program is expected to be released in two distinct phases, including an educational phase and a pilot phase.

During the training phase, vendors and participants will seek to understand the technology from both a functional and business perspective. During the pilot phase, the focus will be on identifying and testing specific ways to use CBDCs.

Related: Fed and MIT CBDC Research: Distributed Ledger Technology Has ‘Downsides’

The Digital Dollar Project is a partnership between the non-profit organization Digital Dollar Foundation and the IT consulting firm Accenture. DDP seeks to encourage research and discussion around a US CBDC and published a white paper proposing a tokenized US digital dollar in May 2020.

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