Major US Clearing House Experiments with CBDC for Real-Time Settlements

DTCCCBDC1

It takes a lot of complicated financial engineering to make it look like your stock market trades settle instantly. But in reality, it takes a vast shadow network of clearinghouses several days to shift your money around the market. 

A new central bank digital currency (CBDC) prototype from the U.S. Depository Trust & Clearing Corporation wants to speed things up.

On Apr. 12, the DTCC announced that it’s building ‘Project Lithium’, a CBDC prototype that it’s using to explore whether a Federal Reserve-issued digital currency could clear a trade as soon as a brokerage sends the money.

The DTCC is very important; it processed $2.37 quadrillion worth of securities in 2021. Greasing its wheels could increase the efficiency of the financial markets by freeing up liquidity that would otherwise be tied up for several days.

“Project Lithium represents the next major step in our exploration of DLT, tokenization, and other emerging technologies,” said Jennifer Peve, who heads strategy and business development at the DTCC. “[It] will lay the groundwork for the financial community to better evaluate the implications of a CBDC across the trade lifecycle.”

The DTCC is building the prototype with the Digital Dollar Project, a pro-CBDC non-profit led by J. Christopher Giancarlo, the former head of the Commodity Futures Trading Commission.

Giancarlo said in a statement that a CBDC could save time and money, and make it easier for central banks to move money around the economy. 

The announcement comes a month after the Biden administration issued an Executive Order requesting extensive “research and development efforts” into a U.S. CBDC. Biden asked government agencies to submit their findings by September 5. 

The United States is not alone in making CBDCs a priority – most of the world’s central banks are pumping resources into the technology. Just last week, the U.K. Treasury recognized stablecoin payments, and last month, the Bank of Canada teamed up with MIT on a year-long research project into CBDCs.

China Ahead

China is further along in this race. Beijing first trialed a digital yuan in December 2019 and launched pilots in Shenzhen and Suzhou during the first half of 2020. Those pilots had expanded to more than 20 cities by the Winter Olympics in February.

Last month, Chinese officials estimated that the central bank had issued wallets to close to a fifth of China’s population – 261 million people – and that the network had processed nearly $14B billion.

Yesterday, the Bank for International Settlements, colloquially referred to as the central bank of central banks, published a report on how CBDCs could further financial inclusion.

The report, which drew upon interviews from central banks with advanced CBDCs, like the Bahamas and China, advised that CBDCs should work internationally, with existing payment systems and without Internet access. 

“While they are not a magic bullet, central banks see CBDC as a further tool to promote financial inclusion if this goal features prominently in the design from the get-go,” the BIS concluded.

Get smarter on DeFi and Web3

Get the 5-minute free newsletter keeping 60K+ crypto innovators in the loop.

No spam. Unsubscribe anytime.

Trending Now

CelsiusWithdrawalsPaused
Celsius Defies Fear of Implosion as Token Soars 218%
SMSOSOM
Solana Labs Has About 10 People Working on Its Saga Mobile Phone
MarketsPump
Crypto Markets Sustain Rally After Monster Rate Hike

Recent Jobs