DTCC building industry’s first prototype to support digital U.S. currency in the clearing & settlement process
As the U.S. government advances its analysis into the risks and benefits of a Central Bank Digital Currency (CBDC), The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, today announced the development of the first prototype to explore how a CBDC might operate in the U.S clearing and settlement infrastructure leveraging distributed ledger technology (DLT). The prototype, known as Project Lithium, 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.
As the markets evolve and become more digitalized, the use of printed U.S. currency continues to decline while the adoption of tokenized securities grows at a rapid pace. Unlike private cryptocurrencies such as bitcoin, a CBDC would be issued and backed by the Federal Reserve, just like U.S. paper dollars and coins.
With this prototype, DTCC, in partnership with The Digital Dollar Project (DDP), aims to demonstrate the direct, bilateral settlement of cash tokens between participants in real-time delivery-versus-payment (DVP) settlement. The pilot will also identify how it can leverage DTCC’s robust clearing and settlement capabilities to fully realize the potential benefits of a CBDC, including:
- Reduced counterparty risk and trapped liquidity
- Increased capital efficiency
- A more efficient, automated workflow
- The guarantee that cash and securities are delivered
- Added transparency to regulators
“DTCC has for several years been experimenting, engaging and leading the conversation around the digitalization of financial markets, and Project Lithium represents the next major step in our exploration of DLT, tokenization and other emerging technologies,” said Jennifer Peve, Managing Director, Head of Strategy and Business Development at DTCC. “Project Lithium will lay the groundwork for the financial community to better evaluate the implications of a CBDC across the trade lifecycle, as interest in this style of funding continues to grow.”
Project Lithium is the newest effort in DTCC’s ongoing journey to lead the industry toward greater digitalization.
DTCC is developing its Project Lithium pilot in collaboration with The Digital Dollar Project, a non-profit led by former U.S. regulators, renowned tech leaders and executives from the consulting firm Accenture. With initial funding from Accenture, DDP is facilitating a series of retail and wholesale pilots to evaluate how a central bank-issued currency might work across U.S. financial infrastructure and the American social landscape.
“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,” said J. Christopher Giancarlo, Co-Founder and Executive Chairman of The Digital Dollar Project and former chairman of the CFTC.
“We thank DTCC for their partnership in the first of a series of pilots and their deep commitment to helping the financial community better understand and realize the potential advantages and challenges of a U.S.-backed digital currency.”
David Treat, Global Metaverse and Blockchain Lead at Accenture and Co-Director of the DDP, said, “Project Lithium is another key facet in the modernization of core capital markets infrastructure. The direct exchange of tokenized assets for Central Bank Digital Currency provides a tremendous basis for simplification, efficiency, and a new product and services innovation frontier. We applaud DTCC’s continued leadership and focus.”
Jennifer Peve, Managing Director, Head of Strategy and Business Development at DTCC, added, “Project Lithium will test how DTCC’s robust clearing and settlement capabilities might support a U.S. digital dollar. We look forward to sharing the results of the pilot with the broader financial community in Asia and beyond, as providers consider and evaluate the implications of how a CBDC might work in their own markets.”