UST: How the CBDC Landscape Could Evolve in 2024

As the use of blockchain technology in financial services continues its expansion, the buzz around Central Bank Digital Currencies (CBDCs) – and the scope of their use – has continued to grow.

Here, we speak to Daniel Field, Director of Innovation and Global Head of Blockchain at UST, on the evolving landscape of CBDCs in 2024. 

From proof of concept to proof of values 

While there is some variation in the advancements of CBDCs from country to country, for Daniel, it’s clear that the CBDC landscape is growing rapidly. The Bank of International Settlements has predicted there will even be 15 retail CBDCs by 2030. 

“We’ve already moved from proof of concepts and experimentation piecemeal on different aspects into proof of values and designing prototypes of full systems,” he says.

“In other words, many central banks are now working on the real thing. In parallel, we see more political and legislative work being done, setting the groundwork for future implementations.”

In March 2024, global bank messaging network SWIFT announced its plans to launch a CBDC platform in the next two years, connecting rapidly growing, yet otherwise independent CBDCs.

What's more, 2024 has already seen several large tenders from the European Central Bank – not on CBDCs specifically, but on different parts of the system vital for CBDC functionality. 

Daniel continues: “A total of five tenders went out to competition ranging from mobile apps and Software Development Kits (SDKs) to security aspects. 

“The sector is poised to continue this trajectory for some time but there are still many who are hesitant on the value equation – not on the theoretical benefits, but rather more the detailed risk-reward and cost-benefit in practice.”

CBDCs: Benefits outweigh the risks

While some are hesitant about the value equation, Daniel reminds us that risk-reward and cost-benefit are complex analyses. 

“There is more to transformation than new capabilities,” he says. “For sure CBDCs do proffer those: for example, in UST’s work with the Bank of England we showed how smart contracts could easily enable innovations, such as smart three-party locks that place agreed parameters on when a payment should be made. 

“Yet transformation encompasses not only what we can do but how we do it: efficiency, timeliness, ease of use and more.

"In Project Rosalind (an experiment in API prototypes for CBDCs from the Bank of England and Bank of International Settlements on which UST collaborated), we also showed that making these complex functions available and with a low learning curve through standard APIs allowed users, in this case, both established banks and startups, to deliver the sort of services that today require large and complex technology and legal systems.”

It’s clear that initiatives like Project Rosalind, which lower the barriers to CBDC transformation and reduce costs, are what will deliver the most evolutionary impact on the sector, granting individual teams the ability to innovate at speed.

Required skills to deliver a CBDC future 

“It would be wrong to consider CBDC as just a DLT thing,” says Daniel. “Obviously, there is a need right now for specialists in the inner workings of how transactions are made and stored on a digital ledger, how smart contracts can execute escrows or programmed payments, on how those systems scale and are interoperable and secured. 

“UST works with a number of such specialist partners, such as Quant-Network, our partner in Project Rosalind. 

“However, the ramifications of CBDC in other parts of the business will also, increasingly, come to the fore. 

“Naturally, there is the rearchitecting of technology systems to accommodate the changes, but it will go further into process optimisation: which parts of the system become obsolete because risks are eliminated? What impact does a digital ledger have on contractual relationships? Which businesses will be disrupted and how? 

“These are areas of business where systems knowledge becomes more relevant than specific DLT knowledge.”

This is why, to achieve a strong talent pipeline, Daniel believes “it may be better to bring CBDC understanding into those other specialisms and professions, rather than the other way round”.

Insights on Project Rosalind

Below, Daniel shares his key takeaways from Project Rosalind, following its release in June 2023. 

“During Project Rosalind, UST developed an API layer that showed how private sector innovation could operate on a public sector (central bank) ledger that had a constrained scope. It showed that CBDC does not require central bank overreach to ensure privacy and security at the same time. 

“What also became clear was how lowering the barriers to executing advanced payment functions would allow those not expert in the underlying systems to translate that into business value, such as escrowed payments for deliveries. 

“Lastly, Project Rosalind strongly suggested that CBDC could unleash private sector innovation and process transformation far beyond simply reducing the cost and increasing the speed and availability of today’s payment systems.”

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