DTCC testing infrastructure to support digital US currency

New prototype will measure the benefits of a CBDC and inform the future design of the firm’s clearing and settlement offerings.

The Depository Trust & Clearing Corporation (DTCC) has commenced testing how a central bank digital currency (CBDC) might operate in its US clearing and settlement infrastructure using distributed ledger technology (DLT).

Named Project Lithium, the prototype will measure the benefits of a CBDC and inform the future design of the firm’s clearing and settlement offerings. It will also explore how a CBDC could enable atomic settlement, a conditional settlement that occurs if delivery and payment are both received at the same time.

“DTCC has for several years been experimenting, engaging and leading the conversation around the digitalisation of financial markets, and Project Lithium represents the next major step in our exploration of DLT, tokenisation and other emerging technologies,” said Jennifer Peve, managing director, head of strategy and business development at DTCC.

The announcement comes as the US government recently advanced its analysis into the risks and benefits of a CBDC. The use of printed US currency continues to decline, while the adoption of tokenised securities is growing at a rapid pace. Unlike private cryptocurrencies such as Bitcoin, a CBDC would be issued and backed by the Federal Reserve, the same as US paper dollars and coins – meaning the general public would have no associated credit or liquidity risk when using the currency. 

DTCC starts the new pilot on a strong footing, having experience in DLT experimentation over the last few years. “We started thinking about blockchain as far back as 2015, but the pivotal point in time for us was 2017 when we started to explore how we could make the applicability of DLT more meaningful,” Peve told The TRADE. “We conducted our DLT benchmarking study, where instead of hypothesising, we wanted to experiment with the technology, and see as well as demonstrate what it could actually do.”

These experiments have been fruitful for the market infrastructure provider, which recently moved its Project Ion DLT alternative settlement platform into a development phase after six months of testing, and has made progress in its exploration of delivery-versus-payment (DVP) settlement for DTC equities clearing and settlement.

“While Project Lithium is completely separate, we are leveraging the learnings from our previous work, as we look to build out the DVP prototype to connect to the synthetic central bank digital currency network that we’re creating,” Peve said. “We discovered that by bringing these concepts to life, as opposed to just talking about them hypothetically, we could learn much more, not only in terms of our own understanding of the technology, but also what our clients and the industry was thinking about this technology.”

DTCC typically sets itself timeframes of roughly three to five months for such prototypes, depending on the complexity. For Project Lithium, Peve anticipates completing the pilot in Q3 2022.

“At the end of the day, our role in the industry is to drive greater efficiency, while ensuring we’re not introducing systemic risks with new technologies, products, services, and innovations,” concluded Peve. “Experimentation is incredibly important for us to be able to deliver on our mission as an industry utility.”

Meanwhile, the Federal Reserve Board has issued a discussion paper on the potential introduction of a US CBDC, and has called for industry and public feedback on the topic.