By PYMNTS
As you read this, the very nature of money is being interrogated and experimentally reshaped. “There’s a huge global trend going on right now into exploring the intricacies, complexities, difficulties and benefits of leveraging the properties of DLT [decentralized ledger technology] for the financial system,” Daniel Field, global head of blockchain at UST, tells PYMNTS.
That’s because, from bartering for goods and services, to minting coins, to printing banknotes and constructing digital forms of payment, the development of systems for the exchange, storage, and transfer of value has been anything but static over time.
“CBDCs [central bank digital currencies] are the next step,” Field says. And the world’s central banks agree with him. A recent survey by the Bank of International Settlements (BIS) found that 93 percent of central banks are involved in some sort of CBDC project designed to explore – or reap – the benefits that distributing tokenized legal currency banked by a central bank might bring.
Field himself just concluded work on Project Rosalind a yearlong experiment in API prototypes for retail CBDCs from the Bank of England (BoE) and BIS that concluded the technology could support a “diverse range” of new ways to use money.
“What the project fundamentally showed was that private sector innovation can occur on top of a CBDC system run by the public sector,” Field says.
In his view, CBDCs could “change the nature” of the financial sector in coming years.
Enabling financial innovation
While blockchain has become somewhat tarred by its foundational association with the crypto sector, many observers believe that the capabilities of the underlying technology still hold critical promise for storing and moving value.
One of the core challenges addressed by Project Rosalind was the issue of interoperability. In a global financial system comprising diverse payment, processing and transfer mechanisms, achieving seamless compatibility can be daunting.
“Project Rosalind was all about identifying what the retail CBDC ecosystem might look like and how it could support innovation through interoperability,” Field says.
He explains that the typical retail CBDC ecosystem includes the central bank, which is issuing the currency, the payment interface providers (PIPs) processing the payments, and payees and the payers, as well as third parties.
“The question is: How do we get those different actors to interact through APIs to make a system that works for everyone’s benefit and leverages the power of this technology,” Field says. “The private sector should be providing the innovation in the form of new companies and products that leverage the capabilities of a CBDC system, and the public sector should be providing a stable, robust framework underneath it.”
When working within a global financial system, the challenges scale up accordingly.
“This needs to work around the world. It’s got to be seamless,” Field says. That’s why “APIs are fundamental to enabling the ecosystem.”
CBDC tech is ready – but is the World?
With the right education, consensus-building, and scalability considerations, retail CBDCs have the power to transform everyday financial transactions and shape the future of finance.
And certainly, CBDCs aren’t without their benefits but they also aren’t without their critics or skeptics.
Sen. Ted Cruz of Texas has gone as far as to introduce legislation to ban CBDCs in the United States, and doubts about digital currencies persist even in countries that are further along in their projects, like China and India.
“There are legitimate questions out there,” Fields acknowledges. “Because you start thinking, well centralization of power, stability of the network, cybersecurity, all of those questions have to be dealt with. … It’s legitimate that people ask questions, and it’s legitimate that our governments answer those questions.”
But he emphasizes that, “[these questions are] not a blockchain thing, they’re not a crypto thing. This relates to any technology, any government policy which needs to be scrutinized and understood what its impact on all the stakeholders is.”
And as it relates to the technology, Field says that things are ready for take-off.
“The technology is there, it’s effectively ready, it can be improved, it can be made more user-friendly, more secure, more scalable and all the rest of it, but technology is there,” he says.
What’s needed now is the regulation, the social and political and international consensus, as well as the understanding of exactly how a retail CBDC impacts financial systems and incumbent industries, he explains.
“But it’s unlimited what people can start building on top of the CBDC architecture and the products they integrate in once the ecosystem is established,” Field says.
That’s why, at least in his opinion, a future retail CBDC is “something that is definitely going to happen.”
