The clearing and settlement service for all U.S. stocks and bonds said today it’s beginning a pilot program to test how a central bank digital currency could be used to pay for securities transactions. The Depository Trust and Clearing Corp., or DTCC, settled $2.4 quadrillion worth of transactions last year and is the backbone of the U.S. financial system. It’s partnered with the Digital Dollar Project on the venture, which they’re calling Project Lithium.

A central bank digital currency would be a digital version of the U.S. dollar issued by the Federal Reserve. Electronic payments have been around for decades but often take a day or two to settle as banks and brokerages need that time to reconcile their books. A digital dollar, on the other hand, could be sent and received instantaneously, cutting the time a trade takes to settle to mere seconds. That could save Wall Street billions per year in cash they don’t need to set aside to back the trades while in the settlement process.

The move to a CBDC isn’t without its drawbacks, however, and has faced vocal criticism if not done in a way that guarantees users’ privacy. That’s because using a blockchain to issue digital U.S. dollars could allow the government to track every purchase made by those dollars as they enter the economy.

“The trajectory we are on in the US (and Europe) includes state-run digital currency payment rails that would allow for ubiquitous transaction surveillance, censorship, and negative interest rates that steal deposits as a mechanism to enforce wealth taxes or punish savers in periods of sluggish spending,” Ryan Selkis, the co-founder of Messari, a digital asset data and analytics firm, wrote in his 2022 annual crypto report. “Modern governments have not been good stewards of the public’s trust. It would be insane not to fight their efforts to install themselves into 50% of all transactions.”

Listen: DeCent People Podcast With Ryan Selkis of Messari

While securities like stocks and U.S. Treasury bonds are relatively easy to digitize, the payment leg of transactions – as in the greenbacks used to buy and sell them -- has been much trickier to pull off. Stablecoins – which are typically backed by equal amounts of fiat currency and aren’t meant to fluctuate in value – have taken the place of a digital dollar, but U.S. regulators have been skeptical of their use in the broader economy so far.

Project Lithium “will measure the benefits of a CBDC and inform the future design of the firm’s clearing and settlement offerings,” DTCC said in a statement today. “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.”

The number of transactions processed by DTCC is truly staggering. Its custody unit accepts securities issued from 177 countries and holds $87.1 trillion. The DTCC Global Trade Repository generates 16 billion messages a year. In 2012, the U.S. Financial Stability Oversight Council designated several DTCC subsidiaries as “systemically important financial markets utilities” for their key roles in global finance.

The pilot is using what’s called a distributed ledger for the digital dollars, meaning that the banks and brokerages that make up the DTCC membership would all be on the same blockchain-based network. Unlike Bitcoin or Ethereum, a distributed ledger is usually private where all members are known to one another.

Listen: The DeCent People Podcast With Chris Giancarlo, aka ‘CryptoDad,’ and Spearhead of the Digital Dollar Project

Chris Giancarlo, a former chairman of the Commodity Futures Trading Commission and co-founder of the Digital Dollar Project, has long championed the adoption of a digitized greenback.

“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,” Giancarlo said in the statement.

DTCC didn’t say if any of its member banks or brokerages would be participating in the pilot.

“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,” Jennifer Peve, Managing Director, Head of Strategy and Business Development at DTCC, said in the statement.