Joy Macknight

By 2030, the growth of blockchain will be measured in billions of users and trillions of dollars, driven by the adoption of central bank digital currencies and tokenised assets, according to a Citi report.

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 the 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 could be linked to DLT. In the same timeframe, more than two billion people could be using CBDCs.

According to the report, entitled ‘Money, token and games: Blockchain’s next billion users and trillions in value’, the world is reaching an inflection point where the promised potential of blockchain will be realised.

“Tokenisation of financial and real-work assets could be the killer use case driving blockchain breakthrough with tokenisation expected to grow by a factor of 80 times in private markets and reach up to almost $4tn in value by 2030,” says the report. It also predicts $1tn of 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 the BIS Innovation Hub that is testing the technical feasibility of conducting cross-border and cross-currency transactions between different DLT-linked CBDC proofs of concept.

In addition to numerous 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 feasibility of an interoperable network of “regulated liabilities”, including CBDCs and commercial bank digital money, using DLT.

At the recent Citi Digital Money Symposium in London, Tony McLaughlin, emerging payments and business development, treasury and trade solutions at Citi, explained: “The concept of the RLN is to introduce shared ledger technology into payment transactions, which are basically liability transfers between banks. And in that shared ledger, there is central bank money and commercial bank money sitting on the same computational substrate, instead of every bank having its own ledger.

“The RLN is using 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 through 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 involvement of central banks and authorities in this kind of experimentation because, ultimately, it has to work with them as a vital part of the financial system.”

For participants, the RLN is a step in the development of an always-on, programmable, multi-asset financial system.

This collaboration between the central bank and the commercial banks is fundamental to success, according to Alla Gancz, UK payments consultancy lead at EY. “This is not just about a group of banks coming together and designing something – it’s about the public sector and private sector working together,” she said at the conference.

“We now have all the parties around the table, working together with very much an 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, cash management, transparency and speed.” 

A digital dollar may take some time to come to fruition, however, as in February a US congressman proposed a bill aimed at limiting the Fed’s ability to issue a CBDC.

When asked whether he thought a digital dollar will be implemented in the next five years, Mr McLaughlin said: “If there’s going to be a digital dollar, there’s no reason why it should be a Fedcoin. A digital dollar could be made up of the instruments issued by any regulated institution in the network, for example a Fedcoin, Citicoin, Wells Fargo Coin, PayPal Coin and even a stablecoin, if it’s properly regulated. But that’s the key point – a dollar or a pound is not only a central bank liability.”

The summary report from 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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