Fed completes first phase of digital dollar experiment called “Project Cedar”

The Federal Reserve Bank of New York has published the results of an experiment called “Project Cedar“, a protocol that uses a wholesale digital dollar to improve financial transactions. Michelle Neal, head of the bank’s markets group, noted Friday that the research “indicated that settlement could occur in less than 10 seconds on average and that horizontal scaling was possible“.

New York branch of the Fed releases results of digital dollar research associated with Cedar project

On November 4, 2022, the New York branch of the Federal Reserve released a report entitled “PCedar Project: Phase One which deals with a wholesale central bank digital currency (WCBDC). The head of the New York Fed’s markets group, Michelle Neal, further told the press that the WCBDC transactions resulted in “instant and atomic settlement“.

The Phase I prototype of the Cedar Project is a “authorized blockchain network” which uses Bitcoin’s Unspent Transaction Output (UTXO) model, and the software is developed in the Rust programming language.

The New York Fed’s report on the Cedar project follows Federal Reserve Governor Christopher Waller’s statement expressing his views on central bank digital currencies, including those issued by the Fed, at the Money 20/20 conference in Las Vegas.

Christopher Waller stressed at the event that he is not a fan of the Fed issuing a CBDC. “This is simply a checking account with the Fed. I’m not a big fan of it, but I’m open to the idea that someone can convince me that it’s something that’s actually valuable“, detailed Christopher Waller.

In addition, U.S. Senator James Lankford has introduced a bill entitled “No Digital Dollar Act“. Lankford’s bill seeks to prohibit the U.S. Treasury and the Federal Reserve “from interfering with Americans using paper money if a digital currency is adopted and ensures that individuals can maintain the privacy of their transactions using cash and coins.“

Regarding the Cedar Project, Per von Zelowitz, research director of the experiment, said that the experiment was a good starting point.

“Cedar Phase I revealed promising applications of blockchain technology in modernizing critical payment infrastructures, and our inaugural experiment provides a strategic launching pad for further research and development into the future of money and payments from a U.S. perspective“, noted the director.

While current Fed Chairman Jerome Powell says a digital dollar will take “at least two years“, Michelle Neal…believes that the CBDC could “promote financial inclusion and equity by providing access to a broad range of consumers and foster economic growth and stability“.

Michelle Neal also mentioned the other digital dollar effort called “Hamilton Project“, an initiative of the Federal Reserve Bank of Boston and MIT. “While the Federal Reserve has not made any decisions on whether or how to issue a CBDC, we are actively conducting technical research on the design of the retail and wholesale CBDC“, Michelle Neal noted at the Fintech Festival in Singapore.

The official Cedar Project report, however, insists that the research is “not intended to advance a specific policy outcome“.