Banks, investors need to plan as Fed’s digital dollar pilot launches (2024)

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Banks, investors need to plan as Fed’s digital dollar pilot launches? ›

Banks, investors need to plan as Fed's digital dollar pilot launches. The Federal Reserve Bank of New York has started a pilot project to study the feasibility of using distributed ledger technology to manage a digital dollar. Both banks and fintech investors need to prepare for the Fed's next steps.

The pilot will test how banks using digital dollar tokens in a common database can speed up payments. Participating banks include BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank and Wells Fargo.

While the Federal Reserve has made no decisions on whether to pursue or implement a central bank digital currency, or CBDC, we have been exploring the potential benefits and risks of CBDCs from a variety of angles, including through technological research and experimentation.

IndusInd Bank announces successful execution of RBI's programmable CBDC pilot, being the first Bank.

The pilot will be conducted in a test environment and will use a technology provided by SETL and Digital Asset. The list of participants in the pilot program includes BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank, and Wells Fargo.

The banks that participated in the exercise were Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo. The exercise was exploratory in nature and does not have capital consequences.

The Digital Dollar Project said its initial participants in the program are Digital Asset Holdings, Emtech, Knox Networks and Ripple. Digital Asset Holdings builds distributed ledger products for banks and other financial institutions and names Citi, J.P. Morgan, Nasdaq and Deloitte among its clients.

Critics claim the digital dollar, or any form of digital currency, would have major privacy and security concerns and could give the government unprecedented access to Americans' financial data. Digital currencies may also be more susceptible to cyberattacks or hacking than traditional payment methods.

But while moving to a cashless society has several benefits that will accelerate its adoption, and there are legitimate concerns over the role cash will have to play as its use dwindles, there's no sign that cash is going to disappear completely.

For instance, using cash instead of credit or debit cards may help keep some people from overspending, because you can see how little is left in your wallet after every purchase. In short, getting rid of cash would impose hardships on society's most vulnerable people and could jeopardize our privacy.

Why do banks want CBDC? ›

CBDC creates a central point for all of a region's currencies to originate, rather than diversify funds across banks around the region. Blockchains also doubles as an immutable ledger that automatically tracks all payments made across the network.

Wells Fargo Says an American CBDC Could Be Designed, Approved and Launched in Three to Five Years.

Reserve Bank of India (RBI) officials stated in July that 13 banks were participating in a retail CBDC pilot, launched in late 2022 and targeting the mass market, which had more than 1 million users and 262,000 merchants as of end-June.

Security Issues. Some consumers choose to pay for purchases with cash because of security concerns. Every time another big company suffers a breach that compromises payment card information, consumers worry about how that impacts them.

​​RBI began the pilot project wholesale CBDC and picked up nine banks -- State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, YES Bank, IDFC First Bank, and HSBC.

Credit unions oppose CBDC

A recent letter noted that the organization “is concerned that the costly trade-offs are very likely to exceed hypothesized benefits of a CBDC,” presumably referring to the impact of a digital dollar on the banking and credit union sectors.

Bank of America, Capital One, Chase, PNC Bank, Truist, U.S. Bank, and Wells Fargo, the seven banks that launched peer-to-peer money transfer app Zelle, have set their sights on creating a digital wallet that can hold its own against entrenched players such as PayPal.

Central bank digital currencies (CBDCs) are coming, but a digital dollar is unlikely in the near term, Bank of America (BAC) said in a report on Monday.

Amazon.com (ticker: AMZN) and Accenture (ACN) are working with central banks, ideally to try to win contracts to research or help issue digital bank notes. A small company that's majority owned by Overstock.com (OSTK), called Bitt, has launched CBDCs for Nigeria and the Eastern Caribbean Central Bank.