The US Securities Processor Is Building a Prototype to Support CBDC

The United States continues its exploration of a central bank digital currency (CBDC) as the main processor for US securities said it is developing a prototype for studying how such an asset can work in reality. The main goal is to examine how real-time transactions through cash-like tokens can pass through in the clearing and settlement process.

Project Lithium

The Depository Trust & Clearing Corporation (DTCC), the country’s securities processor maintaining the post-trade market infrastructure, announced the development in a recent press release. It added that it’s the first-ever prototype for studying how CBDC may operate in the US clearing and settlement infrastructure by leveraging distributed ledger technology (DLT).

The prototype, known as “Project Lithium,” will test if the US market infrastructure can support the Fed-issued digital currency for daily payments. Unlike cryptocurrencies, such as bitcoin and Ethereum, a CBDC would be backed by the Federal Reserve and have the same value as the physical US dollar.

Through this project, the DTCC will measure the benefits of CBDC and inform the future design of the firm’s compatibility in managing such payments.

According to the announcement, the main goal is to “demonstrate the direct, bilateral settlement of cash tokens between participants in real-time delivery-versus-payment (DVP) settlement.” The DTCC will bring out a few pilot programs for retail and wholesale transactions and examine how they can fit into the American market infrastructure.

The release also stated a variety of benefits of a CBDC, including reduced counterparty risk and trapped liquidity, increased capital efficiency, transactional transparency, etc.

The DTCC is developing its pilot program in collaboration with The Digital Dollar Project, a non-profit organization leading discussions on the US CBDC. Christopher Giancarlo, the co-founder and Executive Chairman of the latter, said:

“A CBDC could improve time and cost efficiencies, provide broader accessibility to central bank money and payments, and all while emulating the features of physical cash in an increasingly digital world.”

Biden Ordered Government Agencies to Look into CBDC

US president Joe biden signed an executive order asking government agencies to look into the pros and cons of developing a Fed-issued CBDC. It came after the widespread concern that if the US stepped behind in creating its own digital currency, the dollar might lose its predominant position as the world reserve currency.

Meanwhile, the order also encouraged the Federal Reserve to continue its research, development, and assessment efforts for a US CBDC and asked Congress to deliver actionable policies that protect investors and guide responsible innovation.


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