The New York Federal Reserve (NY Fed) and the BIS Innovation Hub have been exploring whether a wholesale central bank digital currency (CBDC) could improve settlement times of foreign exchange (FX) transactions which typically take two days. Project Cedar, the New York Innovation Center’s first project, found that atomic settlement for FX transactions using distributed ledger technology (DLT) can happen in ten seconds or less, significantly reducing risks.
In addition to faster and atomic settlement, the DLT experiment supports 24/7/365 payments. A lack of overlapping opening hours across jurisdictions is one of the current frictions in FX transactions.
This is the first of a multi-phase effort to develop a technical design for a wholesale CBDC, although the U.S. has made no decision on issuing a Fed digital dollar.
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