The Innovation Centre of the Federal Reserve Bank of New York (NYIC) has successfully concluded its proof-of-concept for a network that regulates liabilities (RLN). This initiative was carried out in collaboration with nine major financial institutions and the Swift network. The primary objective of the project was to establish a theoretical framework for the exchange and settlement of tokens representing commercial bank deposits and central bank liabilities. This was achieved by leveraging distributed ledger technology and a simulated form of central bank digital currency (CBDC) within the United States.
According to Tony McLaughlin, the head of emerging payments and business development at Citi Treasury and Trade Solutions, the current process of asset transfers involves instant messaging among various parties. However, the actual settlement of these transfers is not as immediate. This insight was shared by McLaughlin during a webinar where the project results were presented.
To address this issue, the project deviated from a trustless and anonymous blockchain approach. Instead, they designed a system where the ledger itself held the value, eliminating the need for settlement through messaging. McLaughlin further explained that the simulated regulated liability network (RLN) operated continuously, enabling the settlement of multiple assets and offering programmability.
During the presentation, McLaughlin highlighted that the simulated regulated liability network (RLN) ensured the complete implementation of U.S. Anti-Money Laundering (AML) and Know Your Customer (KYC) safeguards in international settlements. He described the RLN as a transformative development for international users of the U.S. dollar, as it would contribute to preserving the dollar’s prominent position as the preferred international currency.
The outcomes of the project were summarized through distinct technical, business, and legal reports. The legal report explicitly stated that no legal obstacles were identified that would hinder the establishment of the regulated liability network (RLN) within the existing rules and regulations. It’s important to note that the project focused solely on regulated assets and did not incorporate cryptocurrencies or stablecoins. Additionally, permissionless blockchains and retail central bank digital currencies (CBDCs) were not taken into consideration during the project’s scope.
