23 September 2023

Digital Technology Guru

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The UK Regulated Liability Network Explores Retail Digital Pound

2 min read
The UK Regulated Liability Network Explores Retail Digital Pound

The UK Regulated Liability Network (RLN) is planning to conduct experiments with a retail digital pound backed commercial bank money or tokenized deposits. The RLN is a blockchain network designed for interbank payments and other digital assets. Last year, the RLN, in conjunction with EY, coordinated a proof of concept for cross-border payments. This year, the RLN has gained participation from major UK banks including HSBC, Barclays, Lloyds, Santander UK, and Visa. The collaboration aims to make regulated money smarter for customers.

One of the main use cases explored the UK RLN is the retail digital pound. This choice was made due to the functional consistency of money. The Bank of England has a likelihood of over 50% to launch a retail central bank digital currency (CBDC) that would offer programmability. In order to maintain the uniformity of money in the UK, commercial bank money would need to be programmable as well. This could make a CBDC more appealing to corporates and consumers. Additionally, the RLN could help level the playing field addressing the high holding limits set the central bank for the digital pound CBDC.

Another use case considered the UK RLN is tokenized deposits for cross-border payments and securities settlement. While cross-border payments have potential benefits in terms of speed, cost savings, and 24/7 availability, they also involve complexities due to the involvement of overseas regulators. The RLN participants recognize the overlap with the Fnality infrastructure, which targets token-based wholesale cross-border payments. The RLN also sees potential in using the network for securities settlement, specifically for post-trade settlement of repurchase agreements (repos), which is gaining traction in regulated distributed ledger technology (DLT).

The UK RLN’s preference for DLT technology was influenced factors such as tokenization, integrity, transparency, and privacy. Various technologies such as Corda, Adhara, Millicent, Quant, Polygon, Canton, Setl, Knox, Quorum, Parity, and Hyperledger Besu were assessed in the Discovery Phase, but no decisions on tech providers were announced.

Overall, the UK RLN’s exploration of a retail digital pound and its potential applications in cross-border payments and securities settlement demonstrate its commitment to innovation in the digital asset space. The participation of major banks and industry bodies in these experiments highlights the industry’s interest in leveraging blockchain technology for more efficient and inclusive financial services.

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