Members of the US financial services sector published the findings of a proof of concept (PoC) that explored the feasibility of the regulated liability network (RLN), which is envisioned as an interoperable network for wholesale payments operating on a shared multi-entity distributed ledger.
The participants on this project include: BNY Mellon, Citi, HSBC, Mastercard, The New York Innovation Center at the Federal Reserve Bank of New York (NYIC), PNC Bank, Swift, TD Bank, Truist, U.S. Bank and Wells Fargo. The technology was provided by Digital Asset and SETL, hosted by Amazon Web Services.
While today’s traditional payment systems function effectively, there is still friction in transactions as it relates to speed, cost, off-hours availability, and the settlement process. The RLN PoC explored the potential of shared ledger technology to address these frictions in support of safe and efficient payments.
The study was spearheaded by a collaborative working group leading three workstreams that analyzed the business applicability, technical feasibility, and legal viability of using shared ledger technology to settle the liabilities of regulated financial institutions through the transfer of central bank money. The experiment was conducted in a test environment and used only simulated data. All payments were denominated in USD.
The PoC focused on the following:
- Domestic Interbank Payments: This use case simulated wholesale USD payments between commercial banks and was intended to prove the core functionality of the proposed payment system. Transactions were conducted in commercial bank deposit tokens and settled using a theoretical wholesale central bank digital currency (wCBDC), a tokenized record of a central bank deposit liability.
- Cross-Border Payments in USD: This use case focused on USD wholesale payments outside of the U.S. and explored the potential of the concept to enhance the experience of global users of USD as an international trade and settlement currency.
Business conclusions
The global economy relies on the USD as the international currency of choice for remittances, trade, and financial settlements. A shared multi-entity distributed ledger could deliver improvements in the processing of domestic and cross-border payments. The benefits arise from the orchestration of commercial bank and central bank tokens operating on a common ledger within a sound legal framework.
The business workstream concluded that a global, near-real time, 24/7, dollar payment system could be delivered through the RLN concept. This would enhance the processing of cross-border payments denominated in USD. The working group recommended the exploration of the design space including alternative models and technologies that were out of scope of the PoC but could offer similar improvements for wholesale payments and settlements.