Today, the New York Innovation Center (NYIC), an initiative of the New York Federal Reserve, announced a tokenized money or digital dollar project involving nine financial institutions. It will use the Regulated Liability Network (RLN), which Citi first envisioned, to use the same DLT network to support central bank liabilities, commercial bank money, and non-bank issuer liabilities. Citi, BNY Mellon, Wells Fargo, HSBC and Mastercard are among the participants.

Background of the Regulated Liability Network

Many of those interested in the digital currency will be familiar with the JPM Coin from JP Morgan. While this is tokenized money, it only works for clients with JP Morgan bank accounts. If you had a separate Citi Coin and a Wells Fargo Coin, chances are they would use different technologies. If you want to use distributed ledger technology for interbank payments, you’ll end up with an interoperability challenge.

Citi’s Tony Mclaughlin wanted to reframe the public versus private money debate to regulated versus unregulated money. And therefore creating a single financial market infrastructure and platform that can support central bank money as well as commercial banks and e-money providers. Future regulated stablecoins were also part of his vision.

The plan was also not to limit it to one currency but to support multiple central banks as part of the same IMF.

In a way, it looks a lot like the current banking system, but all the different funds from the institutions are tokenized. And they’re programmable and switchable 24/7.

NYIC RLN Essay

During NYIC’s 12-week trials, the focus is on digital payments in dollars for digital asset transactions, but SWIFT is also involved to support international interoperability.

At this stage, the project will be a simulation, and in addition to the five institutions mentioned, it will also include PNC Bank, TD Bank, Truist, and US Bank.

Initially, Citi worked with enterprise blockchain firm SETL on the solution. SETL subsequently partnered with Digital Asset, which has its DAML smart contract language, and the two tech companies created a joint venture. One benefit of SETL is that it is intended to address the scalability challenges that plague many DLT projects. Digital Asset also has extensive experience in the capital markets through projects with multiple stock exchanges such as ASX, Deutsche Boerse, SGX and HKEX.

One observation is the reference to the RLN as a financial market infrastructure (FMI) rather than a network, like SWIFT. It is much more difficult to get the regulatory go-ahead to launch an FMI.

Other interbank initiatives

There are quite a few other interbank blockchain payment initiatives besides the RLN. In the United States, two nationally focused solutions are USDF Consortium and TassatPay, both of which have so far attracted multiple bank participants. Internationally, there are Fnality, Partior and SWIFT.