The Federal Reserve’s New York chapter on Friday released the first phase results of Project Cedar, a project that focused on testing various use cases of wholesale central bank digital currency (wCBDC). The project found that the blockchain-enabled payments system settled foreign exchange transactions in less than 15 seconds.
The experiment was conducted by N.Y. Fed’s New York Innovation Center (NYIC).
The 12-week project focused on the development of a wholesale CBDC prototype and examined the potential application of distributed ledger technology in enhancing the functioning of cross-border payments.
The report released on 4 November summarizes the problem statement, hypothesis, design, and results of the experiments conducted in Phase 1. It examined if the use of blockchain technology could improve the speed, cost, and access to cross-border wholesale payments. While all the payment systems functioned well, the research identified opportunities for improvement around the settlement. Some of the notable findings of the experiments are detailed below.
- Faster payments: Project Cedar found that its distributed ledger system can settle FX transactions in under 15 seconds on average. The current system can take up to two days to settle most FX spot trades.
- Atomic settlement: The simulated ledger network enabled atomic settlement, meaning both side transactions (debit and credit) were settled simultaneously or not at all. This greatly reduced the risks that counterparties in the transactions face in the traditional system.
- Safe and accessible transactions: The distributed system enabled payments on a 24/7, 365- day basis. It supported objectives related to interoperability by allowing transactions on similar network structures, representing market participants like private banks, central banks, and other financial institutions.
In Phase 2 of the project, NYIC will focus on exploring other sets of challenges including interoperability and ledger design and how to achieve settlement across different blockchain systems.
The Reserve Bank of India launched a pilot wholesale CBDC on 1 November 2022 for the settlement of secondary market transactions of government securities.
