A US think tank has launched a “technical sandbox” to further exploration of a potential US central bank (CBDC) digital currency.
In a Wednesday Tweet from Digital Dollar Project (DDP), the organization said the new program to discover “technical and business implementation” questions that revolve around a US CBDC.
The organization noted that the first participants in the sandbox are crypto firm Ripple, financial technology firm Digital Asset, software platform Knox Networks and banking solutions firm EMTECH.
The Technical Sandbox program aims to provide the federal government, policymakers and the private sector with a better understanding of how a potential CBDC would be rolled out.
This includes the potential implications for retail and wholesale and international use cases such as cross-border payments.
The US Federal Reserve has yet to decide whether or not to implement a CBDC, but has been exploring the potential risks and benefits associated with it.
On January 20, it released a discussion paper examining the pros and cons of CBDCs, but failed to provide any hints about its future plans.
The paper suggested that CBDCs could act as digital money without credit and liquidity risks, improve cross-border payments, help maintain US dollar dominance, promote financial inclusion and expand public access to safe central bank money.
Potential risks found included an altered financial system in the US, heavier bank runs for other forms of money, diminishing the strength of monetary policy, operational resilience, and a difficult balance between transparency and safeguarding the privacy rights of the consumer.
Meanwhile, China’s own CBDC, the digital yuan, is rapidly being rolled out across the country, while the same is happening in Nigeria with the eNaira. The Bahamas and Eastern Caribbean Currency Union countries have also launched CBDCs, while Russia is set to roll out its own in 2024.
The FedNow service, an instant payment service to be launched in mid-2023, aims to begin “technical testing” in September, according to a Monday press release. 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 Wednesday. Barrage suggested that no matter what your opinion of a US CBDC, pilot programs and data are essential when evaluating new technology.
Regardless of your opinion of a US CBDC (retail, wholesale), it is important to evaluate technical approaches alongside varied and complex policy issues. Without data, robust public/private pship, & pilots with 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 kicks off in October, with cross-border payments being the primary focus for early participants.
The program will be released in two separate phases, including an educational phase and a pilot phase.
During the educational phase, providers and participants will try to understand the technology from both a functional and business perspective. In the pilot phase, the focus will be on identifying and testing specific ways in which CBDCs can be used.
The Digital Dollar Project is a collaboration between the nonprofit Digital Dollar Foundation and IT consultancy Accenture. Wanting to encourage research and discussion around a US CBDC, DDP released a white paper in May 2020 proposing a tokenized US digital dollar.
