Benefits of distributed ledger technology
The New York Innovation Center (NYIC) of the Federal Reserve Bank of New York announced on the 6th the results of the PoC (proof of concept) of the central bank digital currency (CBDC).
The purpose of this experiment is to explore the feasibility of a wholesale CBDC using distributed ledger technology (DLT). He explained that in this experiment, it was confirmed that DLT could be useful for payment innovation in domestic and overseas payments.
What is DLT
Abbreviation for “Decentralized Ledger Technology”. Blockchain is also considered a type of DLT.
The New York Fed announced in November last year that it would conduct CBDC trials with private companies such as Mastercard, BNY Mellon and Citi. It is the result of this experiment that the results are now published.
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The statement said that while existing payment systems are efficient, friction remains, especially in speed, cost, usage and processes. In this experiment, we tested whether DLT is useful for safe and efficient payments. Experiments were conducted in a test environment and used only simulated data. This time we are testing domestic and international payments.
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The results of the experiments are published separately from the perspectives of “technology,” “business,” and “law.” In the technical achievements section, he also noted that programmability using smart contracts could help streamline liquidity management.
In addition, in the business item, it was found that it was possible to make payments at a speed close to real time, and that it had the ability to process payments 24 hours a day, even on weekends and holidays. Further analysis and research are needed in the legal section, but at this point in time, no major unsolvable problems have been found in the operation of the current law.
The NYIC director commented on the experiment as follows:
From a central bank perspective, this PoC was useful in exploring the potential of tokenized, regulated money.
Also, I was able to understand what benefits DLT has for the operation of digital money for central banks and commercial banks.
The New York Fed said the announcement did not reflect the opinion of the central bank. It is still uncertain whether the central bank will issue a CBDC.
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