Gilbert Verdian, our founder and CEO, has written a chapter about central bank digital currencies for Finextra’s 2023 Future of Payments report. Subtitled ‘Gaining ground in global interoperability’, this year’s report includes insights from BNY Mellon, Cecabank, Deutsche Bank, HSBC, ING, Nationwide Building Society, NatWest, SEBA Bank, and Société Générale.
Anyone who has ever been involved with a technology project will know that they are notorious for being overtime and over budget. We’ve recently completed one that bucks this trend. It has the potential to significantly reshape our underlying monetary system and the nature of currency – creating a slew of opportunities for banks and payments firms that get ahead of the game.
Headed by the Bank for International Settlements London Innovation Hub, Project Rosalind is an experiment involving more than a dozen commercial banks and payment companies. Since June 2022 it has been testing how to safely distribute and settle a retail central bank digital currency issued by the Bank of England.
The project specifically looked at a public-private sector collaboration model, in which the public sector would issue the currency and provide basic infrastructure, while the private sector worked to produce innovative consumer-facing applications. With our Overledger platform, Quant provided the technology to facilitate interoperability between blockchains and legacy systems, as well as the secure smart contract and tokenisation expertise which served as the foundation for this project.
Although the experiment itself was a resounding success – demonstrating amongst other things that a CBDC will enable citizens and businesses to automate cumbersome payments and processes and implement logic into money – it would be naïve to ignore the fact that the banking industry as a whole – and indeed its customers – still have questions and, in some cases, concerns.
The first, and most existential challenge is the tendency for onlookers to ask, ‘why do we need a CBDC anyway?’. It is a fair question. Many of us are very satisfied with the real-time payments and internet banking offerings already available. The introduction of open banking in recent years has led to the creation of even more convenient payment options. But this overlooks the fact that a key responsibility of any central bank is to make central bank money useful and accessible to citizens. Cash alone is now struggling to fulfil this mandate, given it has become commonplace for vendors to refuse to accept it.
CBDCs, running on blockchains and benefitting from embedded secure smart contracts, are a form of programmable money that could usher in a range of improvements in terms of efficiency, security, and transparency that will benefit banks and their customers.
For example, one of the banks participating in Rosalind allowed users to program the CBDC to create a form of automated escrow. In this use case, a customer would purchase goods from a vendor using their CBDC account, though the funds were temporarily held to ensure that the seller and goods were genuine, and the money could not simply disappear into the ether – a situation that sadly occurs with thousands of online transactions every day. The courier then acted as the third-party verifier who signalled that the delivery had been successfully accepted, and the funds could be released.
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