A think tank in the US has started a “technical sandbox” to help find out more about a possible digital currency from the US Central Bank (CBDC).
Digital Dollar Project (DDP) said in a Tweet on Wednesday that the new programme would look into “technical and business implementation” questions about a U.S. CBDC.
The organisation said that crypto company Ripple, financial technology company Digital Asset, software platform Knox Networks, and banking solutions company EMTECH are among the first people to join the sandbox.
The goal of the Technical Sandbox Program is to help the federal government, policymakers, and the private sector figure out how a possible CBDC would be put into place.
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This includes the possible effects on retail and wholesale, as well as international use cases like payments between countries.
The U.S. Federal Reserve hasn’t decided if it will use a CBDC or not, but it has been looking into the risks and benefits of doing so.
It put out a discussion paper on the pros and cons of CBDCs on January 20, but it didn’t say anything about what it plans to do next.
The paper said that CBDCs could be used as credit- and liquidity-risk-free digital money, improve cross-border payments, help keep the U.S. dollar as the most important currency, increase financial inclusion, and give more people access to safe central bank money.
Some of the risks found were a change in the U.S. financial system, bigger bank runs for other types of money, less power for monetary policy, operational resilience, and a hard balance between being open and protecting consumer privacy rights.
At the same time, China’s own currency, the digital yuan, is being used quickly all over the country, and Nigeria’s eNaira is being used in the same way. The Eastern Caribbean Currency Union and the Bahamas have also started using CBDCs. In 2024, Russia will start using its own.
A press release from Monday says that “technical testing” for the FedNow service, an instant payment service that will launch in the middle of 2023, will start in September. People see FedNow as a step toward a CBDC in the future.
Alexandra Steinberg Barrage, a partner at Davis Wright Tremaine LLP and a former FDIC policy expert, tweeted on Wednesday that she liked the programme. Barrage said that, no matter how you feel about a U.S. CBDC, pilot programmes and data are important when judging new technologies.
The Technical Sandbox Program will start in October, and the first people to take part will be focusing on cross-border payments.
Related: BIS officials say that the adaptability and openness of crypto are key to an ideal financial system.
The programme will come out in two different phases: an educational phase and a pilot phase.
During the education phase, both providers and participants will try to understand how the technology works and how it can be used in business. During the pilot phase, the main goal will be to find and test different ways that CBDCs can be used.
Distributed ledger technology has “downsides,” according to a study by the Fed and MIT’s CBDC.
The Digital Dollar Project is a collaboration between the Digital Dollar Foundation, a non-profit, and the IT consulting firm Accenture. DDP wants to get more people to study and talk about a U.S. CBDC. They will put out a white paper in May 2020 that proposes a tokenized U.S. digital dollar.