New York Fed gathers multiple banks to test supervised responsibility network on the internet

The New York Innovation Center (NYIC) under the Federal Reserve Bank of New York, in collaboration with members of the banking and payment industry, officially launched a Proof of Concept (PoC) project on 11/15. The project will explore the feasibility of an interoperable digital currency platform on a regulated responsibility network (RLN) using distributed ledger technology. The proposed platform aims to enhance financial settlement processes, reduce payment costs, and improve efficiency.

Regulated Liability Network (RLN)

RLN Regulated Liability Networks is a concept for Financial Market Infrastructures (FMI) that facilitate digital asset transactions using distributed ledger technology connecting deposits held by regulated financial institutions. This theoretical FMI provides a multi-asset, always-on, programmable infrastructure that includes tokenized central bank, commercial bank money, and regulated non-bank issuer liabilities like digital currencies denominated in U.S. dollars. The technology aims to bring blockchain innovation into the real economy while maintaining many protections provided by bank regulation. This helps reduce payment costs, ensures consumers can use funds instantly, improves efficiency, lowers credit costs, and expands usability.

The RLN network enables tokenization, allowing these programmable tokens to interact across different regulated issuers. Simulated digital currencies issued by commercial banks represent their customers' deposits and settle on shared multi-account with simulated central bank reserves. In the future, these trials may expand to other digital assets such as regulated bonds, stocks, and potentially regulated stablecoins.

Amid recent FTX bankruptcy and the push for Proof of Reserve by major exchanges, the concept of bringing other regulated assets into governance, as RLN is attempting, is promising. Tony McLaughlin, responsible for emerging payments and business development at Citigroup, and an expert in the RLN field, wrote in an article:

Central banks and regulators may create a new direction for regulated sectors by slightly adjusting existing CBDC projects and emerging tokenization of commercial bank money. They may take a broader view of future missions—not just tokenizing central bank liabilities, but tokenizing all regulated liabilities on a universal platform.