The New York Fed and several financial firms announced the successful regulated network RLN experiment.

The Federal Reserve Bank of New York and several major U.S. banks, including Bank of New York Mellon and Citigroup, announced the results of a months-long experiment using proof of concept (PoC) and a regulated responsibility network (RLN) to enable faster and more reliable payments with tokenized U.S. dollars.

Regulated Liability Network (RLN) for Enhanced Interoperability

The New York Innovation Center (NYIC) under the New York Federal Reserve Bank, in collaboration with members of the U.S. banking and payments industry, initiated a Proof of Concept (PoC) project in November last year. The project focuses on exploring the feasibility of a regulated liability network (RLN) for an interoperable digital currency platform using distributed ledger technology to enhance financial settlement methods, reduce payment costs, and improve efficiency.

RLN, short for regulated liability networks, is a concept in the financial market infrastructure (FMI) that facilitates digital asset transactions using distributed ledger technology to link deposits held by regulated financial institutions. By tokenizing all transactions on a shared ledger, these programmable tokens can then interact across different regulated issuers.

The current testing phase of the project involves a USD-operated design version of RLN. Apart from NYIC, participants include New York Mellon Bank, Citibank, HSBC Bank, Mastercard, PNC Bank, TD Bank, Truist, Bank of America, and Wells Fargo. The technology is provided by SETL and Digital Asset, with support from Amazon Web Services. Swift, responsible for the global cross-border payment delivery system, is also involved in the project.

Successful Experiment Does Not Determine CBDC Decision

The successful experiment simulated domestic interbank payments and USD cross-border payments scenarios, confirming that shared ledger technology is a potential solution to support payment innovations.

Per von Zelowitz, Director at the New York Federal Reserve Bank, stated:

From a central bank perspective, the PoC is beneficial for exploring tokenized regulated deposits and understanding the potential functional advantages of central bank and commercial bank digital currencies operating together on a shared ledger.

In addition to establishing technical feasibility, the experiment confirmed that this technology could settle nearly in real-time 24/7 for commercial operations in the future. The experiment also considered the application of certain relevant regulations within the RLN system during the PoC. It was found that using shared ledger technology, including tokens, to record and update ownership of central bank and commercial bank deposits should not alter the legal treatment of such deposits. No insurmountable obstacles were found within the existing U.S. legal framework during this experimental process.

This research contributes to shaping the application of new technologies in regulated financial systems. However, the report indicates that the New York Fed does not intend to advance any specific policy outcomes and does not imply decisions on issuing a central bank digital currency (CBDC) or other products.