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How a Regulated Liabilities Network Could Solve the Cashless Dilemma

Central bank digital currencies (CBDC) are often mentioned as a key motivation for the rise of a cashless society. As Sweden’s central bank, Riksbanken, discusses in its paper, The Riksbank’s e-krona project, Report 1:

"Today, cash is used to an ever-decreasing extent in Sweden, which has led us within the world of central banking to start considering whether a digital complement to cash that is guaranteed by the state is needed so that we will be able to promote a safe and efficient payment system in the future too."

For me, this is a no-brainer. I love not having to carry and pay with cash. Yet I am very aware that today’s cashless systems, which depend on reliable power and connectivity to some backend services, have their limitations. Take my local supermarket as an example. Like many others in Sweden, it is a cashless store and only accepts debit and credit cards through iZettle, one of the Swedish fintech wonders that is now part of PayPal. For the most part this is fine. Like I said, I prefer contactless over cash payments anyway. However, there have been multiple occasions where I have come to pay and the POS terminal has had other ideas and, for reasons unknown, my payment wouldn’t complete. 

With non-cash transactions expected to reach 1.1 trillion by 2023, clearly, we need an efficient, parallel digital cash system that will carry on working should a card payment fail or a banking network go down, as they do from time to time. This is important in the case of retail payments, where a failed payment means a lost sale for the merchant if the customer becomes tired of waiting for the problem to be fixed. It is even more critical in extreme cases where online payments are disrupted by an act of war, cyberattack, or natural disaster.

But why wait for CBDC’s to solve the cashless conundrum? I have previously lent my support to the concept of a Regulated Liabilities Network (RLN) as proposed by Citi in its paper “The Regulated Internet of Value.” Let’s assume that this RLN would also support offline payments. We would now have a very robust retail payment system that could handle most, if not all, retail payments use cases, including online and offline and programmable payments. In fact, an RLN with support for offline payments might be the most efficient and least risky path towards a cashless society. It could help broaden accessibility, increase diversity and strengthen the resilience of digital payment systems, which is vital for national infrastructure.

At M10, we encourage central banks to continue researching and experimenting with CBDC but urge them also to consider systems that can function offline. After all, if a digital currency doesn’t work for offline payments can it really be considered a viable replacement for cash?

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Comments: (3)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 17 March, 2022, 14:04Be the first to give this comment the thumbs up 0 likes

Keen to know how multiple is "multiple occasions where I have come to pay and the POS terminal has had other ideas and, for reasons unknown, my payment wouldn’t complete"?

Even when we need to enter PIN in India - i.e. have one more moving part compared to USA where PIN is not a thing - I don't recall the last time that my instore credit card payment failed. At least it hasn't happened in the last five years.

Marten Nelson
Marten Nelson - M10 - Stockholm 18 March, 2022, 12:17Be the first to give this comment the thumbs up 0 likes

Maybe a couple of times per year. Consider this event https://www.bbc.com/news/technology-57707530

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 24 March, 2022, 13:29Be the first to give this comment the thumbs up 0 likes

Okay, thank you.

Are you suggesting that RLN will not even fail a couple of times a year amidst standard power and server connectivity challenges?

Marten Nelson

Marten Nelson

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M10

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