Given this is how things work today and most legislation is technology agnostic, it likely wouldn’t require legislative changes and may dispense with the need for CBDCs.
The concept also addresses bank coins or settlement tokens. “If we as commercial banks think that the right thing to do is for each of us to create our own coins, again, the regulated sector will be fragmented. And that will not help in the contest between regulated money and non-regulated money,” said Mclaughlin.
Another characteristic of regulated monies is they are all account-based, whereas crypto and stablecoins use tokens.
Central bank money, commercial bank money and emoney are all regulated and represent specific legal liabilities, no matter their technical form. In contrast, most cryptocurrencies do not represent a liability. For now, stablecoins are not regulated and in some cases, the liability is unclear. That may change, in which case stablecoins could join the ledger.
The concept involves creating a blockchain with tiers and partitions, on which central banks perform the same current role dealing with commercial banks. On the same ledger, commercial banks and emoney providers perform similar activities as they do now with their clients.
In Mclaughlin’s view, the debates around central bank digital currency (CBDC) frame the conversation as public versus private money. An alternative perspective is to look at regulated versus unregulated money.
This big idea aims is for the regulated sector to adopt tokenization to enable 24/7 operations, programmability, and a single infrastructure for multiple types of assets.
“We should join up as a regulated financial industry to embrace tokenization together,” said Mclaughlin.
The bank has already moved beyond conceptualization to experimentation, and its solution is one of 15 finalists at the Monetary Authority of Singapore (MAS) CBDC Challenge. It’s collaborating with SETL, the tech company it previously invested in, OCBC Bank and BondEvalue. However, Mclaughlin was keen to promote the concept as non-proprietary and not tied to any particular technology. He emphasized this is not a Citibank platform but a shared one that the consortium of participants would own. It was also suggested that such a platform could accommodate multiple central banks, creating a global real-time settlement system (RTGS). In some ways, this is not dissimilar to some of the multi-CBDC or M-CBDC trials already happening.
The Regulated Liability Network is certainly a big idea. Many of the arguments make a lot of sense. But there’s one particular risk with both CBDCs and most blockchains at scale. If a CBDC encounters a technical flaw, everyone could be prevented from using it, even if it’s temporary. If the entire regulated sector used a single network, it would represent a systemic risk on a scale never before imagined.