A Think Tank Is Launching A Technical Sandbox Exploring US CBDCs

A think tank is launching a technical sandbox exploring US CBDCs in order to further investigate the prospective of a US central bank digital currency (CBDCs).

In an Aug. 31 tweet, Digital Dollar Project (DDP) stated that the new initiative will investigate “technical and commercial implementation” issues around a CBDC in the United States.

The sandbox’s inaugural members include crypto-business Ripple, financial technology company Digital Asset, software platform Knox Networks, and banking solutions provider EMTECH, according to the group.

The purpose of the ‘Technical Sandbox Program’ is to provide the federal government, lawmakers, and the corporate sector with a better understanding of how a prospective CBDC might be implemented.

This includes the possible consequences for retail and wholesale, as well as international use cases like cross-border payments.

The US Federal Reserve has yet to determine whether or not to establish a CBDC, although it has been researching the possible dangers and advantages.

It published a discussion paper on the benefits and drawbacks of CBDCs on January 20 but made no mention of its future plans.

The study proposed that CBDCs may function as digital money free of credit and liquidity issues, facilitate cross-border payments, aid in the preservation of the US dollar’s supremacy, promote financial inclusion, and provide the public with access to secure central bank money.

Potential hazards discovered included an altered US financial system, more severe bank runs for other kinds of money, a reduction in monetary policy’s authority, operational resilience, and a difficult balance between transparency and protecting consumer privacy rights.

Meanwhile, China’s CBDC (the digital yuan) is rapidly spreading across the country, and the eNaira is doing the same in Nigeria. The Bahamas and the Eastern Caribbean Currency Union have already introduced CBDCs, while Russia plans to establish its own in 2024.

According to an Aug. 29 news release, the FedNow service, an immediate payment service planned to start in mid-2023, is to begin “technical testing” in September. FedNow is viewed as a first step in establishing a CBDC.

Alexandra Steinberg Barrage, a Davis Wright Tremaine LLP lawyer and former FDIC policy specialist, tweeted her support for the initiative on Aug. 31. Regardless of your feelings on a CBDC in the United States, Barrage believes that pilot projects and statistics are critical when evaluating new technology.

No matter your views on a US CBDC (retail , wholesale), it’s important to evaluate tech approaches alongside varied and complex policy issues. W/out data, robust public/private-pship, & pilots w/consumers and intermediaries, we cannot sharpen our thinking. @Digital_Dollar_ https://t.co/xLy02IOz6b

— Alexandra Steinberg Barrage 🇺🇸🇨🇴 (@alexbarrage1) August 31, 2022

The Technical Sandbox Program is slated to begin in October, with early participants focusing on cross-border payments.

The program is scheduled to be published in two phases: an instructional phase and a pilot phase.

During the instructional phase, providers and participants will attempt to comprehend the technology from both a functional and a business standpoint. During the pilot phase, the emphasis will be on discovering and evaluating specific applications for CBDCs.

The Digital Dollar Project is a collaboration between the non-profit Digital Dollar Foundation and the IT consulting business Accenture. In May 2020, DDP launched a whitepaper suggesting a tokenized US digital dollar in order to spur study and discussion around a US CBDC.

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