New York Fed Launches CBDC Experiment with Major Banks: What to Know

US Federal reserve logo on computer

What happened here?

Physical currency just isn't cutting it anymore.

As cryptocurrency and stablecoins become increasingly popular, the world's central banks want in - before this opportunity passes them by. On November 15th, the Innovation Center of the Federal Reserve Bank of New York (NYIC) announced its launch of a 12-week long proof-of-concept pilot program.

This program would explore the feasibility of a central bank digital currency (CBDC). Although federal regulators in the U.S. are not yet hopping on this trend, private sector banks such as Wells Fargo, TD, Citi & Truist are exploring the technology.

The program will investigate whether a shared multi-entity distributed ledger operated on a regulated network could support an interoperable network of central bank wholesale digital money and commercial bank digital money.

To participate in the pilot, the aforementioned institutions will create tokens and settle transactions using fictitious central bank reserves. The NYIC is eager to work with the banking industry to expand the field's understanding of asset tokenization.

In the near future, the project could expand to multi-currency operations and controlled stablecoins.

Governments around the world see it as a way to eliminate carbon emissions and gain greater access into the financial lives of its citizens. Read on to find out more about how they will exert that control.


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A step in the wrong direction

The crypto world has criticized the move as a step in the wrong direction due to the many issues with CBDCs. A CBDC is by definition and name, centralized. And the fact there are two types of them (wholesale for consumers, and commercial for banks) makes the scheme even more unfair and confusing.

Having a large government like the US control a digital dollar would enact a cascade of negative effects on the world and crypto industry alike.

Given the dollar would almost certainly be programmable, this would mean any bank or federal agency could freeze transactions far more efficiently than in the current system. In addition, this will allow the government to enforce its rules through code, making sure you're always "compliant."

We already saw a preview of this frightening behavior when Circle froze the USDC of Tornado Cash users.

As the months tick by, you can expect further developments in this pilot run of the CBDC. Even if the CBDC will save carbon emissions, the lives of US citizens could potentially be ruined.

When Satoshi Nakamoto launched Bitcoin in 2008, his entire vision was to develop a secure financial network completely untethered from government. CBDCs fundamentally violate Satoshi's vision, and in the end, it may even worse than physical money, depending on who you ask.