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A new private-sector initiative is aiming to build the industry’s first prototype to test the ability of the US market infrastructure to support a Fed-issued central bank digital currency (CBDC).
The Depository Trust & Clearing Corporation (DTCC), together with the Digital Dollar Project, will develop a prototype to explore how a CBDC might operate in the US clearing and settlement infrastructure leveraging distributed ledger technology (DLT).
The prototype, dubbed Project Lithium, aims to demonstrate the direct, bilateral settlement of cash tokens between participants in real-time delivery-versus-payment (DVP) settlement.
The pilot will measure the benefits of a CBDC and inform the future design of the firm’s clearing and settlement offerings.
It will also identify how it can leverage the clearing and settlement capabilities of DTCC, which provides post-trade clearing and settlement services to the financial markets.
“Project Lithium will lay the groundwork for the financial community to better evaluate the implications of a CBDC across the trade lifecycle, as interest in this style of funding continues to grow,” said Jennifer Peve, managing director, head of strategy and business development at DTCC.
Project Lithium is part of DTCC’s ongoing research and development innovation work. "We continuously monitor the overall landscape and key trends including how digital currency, stablecoins and CBDC might fit into the clearing and settlement process," the company told VIXIO.
The initiative follows the government’s efforts to explore and analyse policy and technological questions around a CBDC.
The Federal Reserve opened a wide-ranging public consultation on policy considerations of a digital greenback at the end of January.
This was shortly followed by an announcement by the Boston Fed and the Massachusetts Institute of Technology (MIT) on the conclusion of the first phase of building a hypothetical CBDC platform. That research closed with the creation of open-source software, called OpenCBDC, which could handle 1.7m transactions per second (tps), with transactions reaching settlement finality in under two seconds.
Although the Fed considers policy and design analysis for a CBDC, DTCC is exploring how it can enhance its own solutions so that DTCC can support whichever digital asset innovation its clients request, whether that is CBDC, FedNow, stablecoins or others, the company told VIXIO.
Project Lithium does not involve the Federal Reserve, but the organisations hope the results of the project can inform future government decisions.
“Our biggest worry is that central banks do nothing for a long time and then suddenly try to roll out a central bank digital currency without a lot of testing and without a lot of engagement with the private sector,” said J. Christopher Giancarlo, co-founder of the Digital Dollar Project and former chairman of the Commodity Futures Trading Commission (CFTC).
“We at the Digital Dollar Project are not advocating for the US to deploy a CBDC but we are strongly advocating that the US begin to experiment and examine what role a CBDC could play in a democracy such as the United States,” Giancarlo said in an interview to CoinDesk.
“Money is as much as a social construct as it is a government construct,” he said, adding that “money is too important to be left to the central bankers. It must have a vigorous engagement by the private sector and with private citizens, both in its retail use and in its wholesale use.”
