Is blockchain on the verge of a breakthrough? –

The past year has witnessed a sustained buzz around central bank experiments with new forms of money such as digital currencies (CBDCs). Recently, the Bank of England launched a consultation on a potential digital pound; The European Central Bank indicated that a digital euro could be released within four years; and Reserve Bank of India launched digital rupee pilots for both wholesale and retail segments.

And while not all CBDC initiatives are based on blockchain, or distributed ledger technology (DLT), a recent white paper by Citi Global Perspectives and Solutions predicts that by 2030 up to $5tn worth of CBDCs could be circulating in major economies , half of which can be linked to DLT. In the same time frame, more than two billion people can use CBDC.

According to the report, titled ‘Money, token and games: Blockchain’s next billion users and billionaire in value’, the world is about to reach a tipping point where the promised potential of blockchain will be realized.

“Tokenization of financial and real-world assets could be the killer use case driving the blockchain breakthrough with tokenization expected to grow by a factor of 80x in private markets and reach nearly $4tn in value by 2030,” it said the report. It also predicts $1tn in DLT-based trade finance volumes by 2030.

Beyond domestic initiatives, several cross-border experiments are underway to test the interoperability of blockchain-based CBDCs. For example, Project Icebreaker is a collaboration between the Bank of Israel, Norges Bank, Sveriges Riksbank and BIS Innovation Hub that tests the technical feasibility of carrying out transactions across national borders and across currencies between different DLT-linked CBDC proofs of concept.

In addition to a number of CBDC projects, in November 2022 eight commercial banks, Mastercard, Swift and the New York Innovation Center, which is part of the Federal Reserve Bank of New York, launched the Regulated Liability Network (RLN) proof of concept. The 12-week pilot explores the possibility of an interoperable network of “regulated obligations”, including CBDCs and commercial banks’ digital money, using DLT.

At the recent Citi Digital Money Symposium in London, Tony McLaughlin, new payments and business development, finance and trade solutions at Citi, explained: “The concept of RLN is to introduce shared financial technology into payment transactions, which are basically transfers of responsibility between banks. And in the shared ledger, central bank money and commercial bank money sit on the same basis of calculation, instead of each bank having its own ledger. RLN uses shared ledger technology to upgrade the two-tier sovereign currency system.”

Nick Kerigan, head of innovation execution at Swift, added: “What has been impactful and useful throughout the proof of concept so far is that the Fed is providing its views and feedback, as well as helping to shape the pilot. We welcome the engagement of central banks and authorities welcome in this kind of experimentation, because ultimately it has to work with them as an important part of the financial system.” For participants, RLN is a step in the development of an always-on, programmable, multi-asset financial system.

This cooperation between the central bank and the commercial banks is fundamental to success, according to Alla Gancz, head of British payment consultancy at EY. “This is not just about a group of banks getting together and designing something – it’s about the public sector and the private sector working together. We now have all parties around the table, working together with a very open mindset and looking to address specific pain points, whether it’s around cross-border payments, wholesale, retail or security settlements, but ultimately to improve liquidity , the cash handling, transparency and speed, she said at the conference.

However, it may take some time to realize a digital dollar, as a US congressman in February proposed a bill aimed at limiting the Fed’s ability to issue a CBDC. Asked if he thought a digital dollar would be implemented in the next five years, McLaughlin said: “If there’s going to be a digital dollar, there’s no reason it has to be a Fedcoin. A digital dollar can pass of the instruments issued by any regulated institution in the network, such as a Fedcoin, Citicoin, Wells Fargo Coin, PayPal Coin and even a stablecoin, if properly regulated. But that is the key point – a dollar or a pound is not just a central bank commitment.”

The summary report of the RLN pilot is expected to be released in May.

Joy Macknight is editor of The banker. Follow her on Twitter @joymacknight

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