The Regulated Liability Network (RLN), in a ground-breaking step toward defining the future of central bank digital currency (CBDC), has successfully finished its discovery phase in the United Kingdom. The influential UK Finance advocacy organization is ready to support the RLN project, a worldwide alliance of financial institutions that is about to set out on a transformative journey.
During the discovery phase, the RLN explored various potential use cases, including consumer domestic payment, wholesale cross-border payment, and securities settlement. The verdict is in, and the project is now set to pave the way for a proof of concept in consumer domestic payments. This pivotal decision opens the door to a world where traditional commercial bank money and retail CBDC coexist harmoniously on a single infrastructure. The report highlighted numerous potential applications for domestic payments, drawing inspiration from the list provided in the outcomes of Project Rosalind.
The RLN’s decision to focus on consumer domestic payments is not without reason. It promises an array of advantages, including ensuring consistency between CBDC and commercial bank money, a significant step in preserving the unity of currency. It is expected to combat authorized push payment fraud, thereby enhancing consumer security, especially in cases of undelivered goods. Additionally, it holds the promise of expediting settlement times, streamlining financial transactions for all parties involved.
One of the distinguishing features of RLN is its utilization of a native settlement token. This facilitates the coexistence of tokenized regulated money and digital assets on a unified ledger. Notably, tokenized liabilities remain claims on the issuer, reaffirming the network’s commitment to security and regulation.
The RLN has already completed a pilot program for wholesale cross-border payments in partnership with the New York Federal Reserve Bank and several prominent financial institutions. However, it has been acknowledged that this use case presents significant complexity, particularly due to the involvement of multiple jurisdictions, diverse participants, including central banks, and intricate regulatory requirements.
While securities settlement also holds promise, the report suggests that it faces medium-level feasibility concerns, owing to the involvement of numerous non-bank entities and regulatory intricacies.
Notably, the RLN is not exclusively tethered to blockchain technology, showcasing adaptability by identifying five different infrastructure architectures. This adaptability closely aligns with the “unified ledger” solution proposed by the Bank of International Settlements and the International Monetary Fund’s “trusted single ledger.”
In parallel developments, the Bank of England’s central bank digital currency (CBDC) program is making strides. Tom Mutton, the director of fintech at the Bank of England, has unveiled the bank’s exploration of alternative ledger technologies, including blockchain, as it seeks to strike a balance between distributed-ledger models and the efficiency offered by conventional ledgers.
Furthermore, the Bank of England has initiated the formation of a digital Pound advisory group to advance the development of the CBDC. Academics and researchers are being invited to join this advisory group, emphasizing the collaborative approach between the central bank and academic expertise.
As the RLN forges ahead with its mission to reshape the landscape of CBDC, and the Bank of England delves deeper into the digital Pound’s development, the world of central bank digital currencies is experiencing a remarkable evolution, poised to transform the future of finance.