Think tank launches ‘technical sandbox’ exploring United States CBDCs

A U.S. think tank has launched a “technical sandbox” aimed at advancing the exploration of a potential United States central bank digital currency (CBDC).

In an Aug. 31 Tweet from Digital Dollar Project (DDP), the organization said the new program would explore “technical and business implementation” questions revolving around a U.S. CBDC.

The organization noted that the initial participants of the sandbox include crypto-firm Ripple, financial technology company Digital Asset, software platform Knox Networks and banking solutions firm EMTECH.

The ‘Technical Sandbox Program’ aims to give the federal government, policymakers, and the private sector a clearer understanding of how a potential CBDC would be rolled-out.

This includes the potential implications to retail and wholesale, and international use cases such as cross-border payments.

The U.S Federal Reserve has yet to decide whether or not it will implement a CBDC, but has been exploring the potential risks and benefits that come with them.

They released a discussion paper examining the pros and cons on Jan. 20 this year but neglected to give any hints about its future plans.

The report however suggested that CBDCs could act as digital money free from credit and liquidity risks, improve cross-border payments, help preserve the dominance of the U.S dollar, promote financial inclusion, and extend public access to safe central bank money.

Potential risks found included a changed U.S financial system, more severe bank runs for other forms of money, reducing the power of monetary policy, operational resilience, and a difficult balance between transparency and safeguarding consumer privacy rights.

Meanwhile, China’s own CBDC (the digital yuan) is quickly being rolled out across the country, while the same is occurring in Nigeria with the eNaira. The Bahamas and countries of the Eastern Caribbean Currency Union have also launched CBDCs, and Russia is set to roll out its own in 2024.

The FedNow service, an instant payment service set to be launched in mid-2023, aims to begin “technical testing” in September according to an Aug. 29 press release. FedNow is seen as a step towards an eventual CBDC.

Davis Wright Tremaine LLP partner Alexandra Steinberg Barrage, a former FDIC policy expert tweeted her support for the program on Aug. 31. Barrage suggested that regardless of what your views are on a US CBDC, pilot programs and data are essential when evaluating new tech.

No matter your views on a US CBDC (retail , wholesale), it’s important to evaluate tech approaches alongside varied and complex policy issues. W/out data, robust public/private-pship, & pilots w/consumers and intermediaries, we cannot sharpen our thinking. @Digital_Dollar_ https://t.co/xLy02IOz6b

— Alexandra Steinberg Barrage (@alexbarrage1) August 31, 2022

The Technical Sandbox Program is set to begin in October with cross-border payments being the initial focus for the early participants.

The program is set to be released in two separate phases, including an educational phase and a pilot phase.

During the educational phase, providers and participants will seek to understand the technology from both a functional and business perspective. Whilst in the pilot phase, the focus will be on identifying and testing specific ways in which CBDCs can be utilized.

Related: Fed and MIT’s CBDC research: Distributed ledger tech has ‘downsides’

The Digital Dollar Project is a partnership between the not-for-profit organization Digital Dollar Foundation and I.T consulting firm Accenture. The project DDP seeks to encourage research and discussion around a U.S CBDC, and released a whitepaper proposing a tokenized U.S digital dollar in May 2020.