Think tank launches ‘technical sandbox’ to explore CBDCs in the United States

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A US think tank has launched a “technical sandbox” aimed at advancing research into a potential US Federal Reserve Bank (CBDC) digital currency.

In an Aug. 31 tweet from the Digital Dollar Project (DDP), the organization said the new program would explore “Technical and business implementation” questions centered around a US CBDC.

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

The Technical Sandbox Program is designed to provide the federal government, policymakers and the private sector with a clearer understanding of how a potential CBDC would be launched.

These include the potential impact on retail and wholesale, as well as international use cases such as cross-border payments.

The US Federal Reserve has yet to decide whether or not to adopt a CBDC, but has been studying the potential risks and benefits involved.

They released a discussion paper on January 20 this year examining the pros and cons, but failed to provide any guidance on future plans.

However, the report suggested that CBDCs could act as digital money free from credit and liquidity risks, improve cross-border payments, help maintain US dollar dominance, promote financial inclusion and expand public access to safe and secure central bank money .

Potential risks identified included a changing US financial system, increased bank runs on other forms of money, diminishing power of monetary policy, operational resilience, and a difficult balance between transparency and upholding consumer privacy rights.

Meanwhile, China’s own CBDC (the digital yuan) is being rapidly rolled out across the country, while the same is happening in Nigeria with eNaira. The Bahamas and Eastern Caribbean Monetary Union countries have also adopted CBDCs, and Russia is expected to introduce its own in 2024.

The FedNow service, an instant payment service due to launch in mid-2023, is scheduled to begin “technical testing” in September, according to an Aug. 29 press publication. FedNow is seen as a step towards an eventual CBDC.

Davis Wright Tremaine LLP partner Alexandra Steinberg Barrage, a former FDIC policy expert, tweeted her support for the program on Aug. 31. Barrage suggested that regardless of your opinion on a US CBDC, pilot programs and data are essential when evaluating new technologies.

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

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

During the training phase, providers and participants try to understand the technology from both a functional and a business perspective. During the pilot phase, the focus will be on identifying and testing specific ways in which CBDCs can be used.

Related: Fed and MIT CBDC research: Distributed ledger technology has ‘disadvantages’

The Digital Dollar Project is a partnership between the non-profit organization Digital Dollar Foundation and the IT consulting firm Accenture. The DDP project wants to stimulate research and discussion around a US CBDC and published a White paper Proposal of a tokenized digital US dollar in May 2020.

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