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The Federal Reserve Bank of New York (Fed) has launched the New York Innovation Center (NYIC) to advance fintech products through a strategic partnership with the Bank for International Settlements (BIS) Innovation Hub. The partnership will also help the Fed analyse central bank digital currencies and improve cross-border payments.
Experts from the New York Fed, BIS and the private and public sector will be working on designing, building and launching new fintech products and services to support the central bank community.
“The work of the Center will be powered by new and different ways of thinking and experimenting, while leveraging the expertise and connections of this strategic partnership,” New York Fed President John Williams said.
“The strategic partnership will let the BIS Innovation Hub benefit from the Federal Reserve's expertise in innovation, and allow us to contribute our own global perspective to the work of the New York Innovation Center,” Agustín Carstens, BIS general manager added.
Among the common goals the two organizations hope to achieve is to develop insights on critical trends in financial technology relevant to central banks, enhance the functioning of the global financial system and build up further expertise in the area of central bank innovation.
“This collaborative relationship leverages best practices, research, and subject matter expertise to support innovation in central banking,” the New York Fed said.
The NYIC will initially focus on five opportunity areas: supervisory and regulatory technology, financial market infrastructures, future of money, open finance and climate risk.
Once it has identified relevant opportunities, the NYIC will aim to develop new products and services from the concept stage, development and releasing in market.
CBDC and cross-border payments
Speaking at the launch event, Federal Reserve chair Jerome Powell said it is the Fed’s mandate to understand the application of advanced digital technologies, such as machine learning, artificial intelligence and big data, and how they are revolutionizing the financial sector.
Powell, who is also head of the BIS Innovation Hub Advisory Committee, expects the new partnership will help foster dialogue, collaboration and knowledge-sharing among central banks and other authorities and institutions.
“In particular, the partnership will support our analysis of digital currencies - including central bank digital currencies; help to improve our current payment system — with a particular focus on making cross-border payments faster and less expensive; and it will provide new tools to aid our supervision of the financial system.”
The Fed is currently assessing both the technical and the policy aspects of a central bank digital currency (CBDC).
Technical research is being carried out by the Massachusetts Institute of Technology (MIT) in collaboration with the Federal Reserve Bank of Boston. The participating research team has been investigating the issuance of a secure and responsible CBDC since 2016, but the project is expected to run for a further two to three years.
At the same time, TechLab, a multidisciplinary team within the Fed, is examining the implications of digital currencies on the payments ecosystem, monetary policy, financial stability, banking and finance and consumer protection.
The Fed was supposed to publish a discussion paper in August, but it is understood that disagreements between the governors around policy are delaying the issuance of the paper.
While the Fed is analysing initial technological and policy questions related to a digital dollar, it is still unclear whether the country will pursue the CBDC road. Development of a Fed-issued digital dollar, however, will be prerequisite on Congress first providing explicit authority that the Fed can develop and issue a CBDC.
