Using a central bank digital dollar to shorten settlement times in foreign exchange markets, according to a top Federal Reserve Bank of New York official, is promising.
The head of the bank's Markets Group, Michelle Neal, did not say that the introduction of a central bank digital currency, or CBDC, was near. But she added that bank research had shown how this particular form of money may help an important aspect of the financial system.
Neal stated in the text of remarks prepared for a conference in Singapore that foreign exchange spot transactions "are critical in the context of cross-border payments, and serve as a building block for longer, more complex transactions." She stated that there is potential for improvement because the settlement of these trades takes roughly two days.
A Fed digital dollar used in wholesale transactions, along with the capability to record transactions, "results in instant and atomic settlement," according to the research effort.
According to the research, "settlement could occur in fewer than 10 seconds on average and that horizontal scaling was possible."
The Fed has been looking on ways to introduce a totally digital dollar, known as Fedcoin by some. According to Fed officials, elected leaders would need to support the launch of any such asset.
Some central bankers have questioned the necessity of a CBDC for the United States.
Before the New York Fed's report on the study project was released, Neal made his remarks.
The first phase of work "revealed promising applications of blockchain technology in modernizing critical payments infrastructure," according to Per von Zelowitz, director of the bank's New York Innovation Center, in that press release. "Our inaugural experiment provides a strategic launch pad for further research and development regarding the future of money and payments from the US perspective," he added.
The report cautioned that its conclusions "are not intended to advance any specific policy outcome" and did not have implications for the adoption of a fully digital central bank currency.
By fLEXI tEAM