NY Fed official: Digital dollar could speed foreign exchange settlement

By Michael S. Derby

(Reuters) – A top Federal Reserve Bank of New York official said on Friday that the bank sees promise in using a central bank digital dollar to speed up settlement time in foreign exchange markets.

Michelle Neal, who is head of the bank’s Markets Group, did not say anything involving a central bank digital currency, or CBDC, was imminent. But she explained that research efforts at the bank identified how this type of money could benefit a key part of the financial system.

Foreign exchange spot transactions “are critical in the context of cross-border payments, and serve as a building block for longer, more complex transactions,” Neal said in the text of remarks to be given before a conference in Singapore. She noted that settlement of these trades take about two days, “which leaves some room for improvement.”

According to the research effort, a Fed digital dollar, used in a wholesale capacity, and the technology to record transactions “results in instant and atomic settlement.”

Neal said the research work “indicated that settlement could occur in fewer than 10 seconds on average and that horizontal scaling was possible.”

The Fed has been exploring for some time how it can launch a fully digital dollar that some have referred to as Fedcoin. Fed leaders have said that any launch of such an asset would need the support of elected leaders.

Some central bankers have questioned whether a CBDC for the U.S. is even needed at all.