Key lessons on the roll-out of CBDCs can be learnt from emerging economies, not least their shared awareness and desire to innovate. Wolfram Seidemann, CEO, Giesecke+Devrient Currency Technology, explains.
Against the backdrop of economic pressure and rising prices, digital innovation has held firm and continues to evolve. A great example of this is the ever-expanding metaverse market alongside e-commerce and IoT payments. In fact, the IoT payments market is projected to reach $27.6bn in value this year. Another area where digital innovation is accelerating is the development of CBDCs, which lay the groundwork for banks and other organisations to build all-encompassing digital schemes, products and services to connect the physical realm of cash with the digital world.
While many countries are only just taking their first steps with CBDCs, it’s the emerging markets such as Ghana and Eswatini (formerly named Swaziland) that are paving the way for wider adoption by utilising its value. Both of these nations are adopting core infrastructure from their central bank, while allowing private businesses to develop innovative customer-facing services and products. By placing this public-private partnership at the forefront of consumer awareness, these countries are empowering trust in both the currency and the convenience of new services.
Developed markets, which have so far been hesitant, can learn some key lessons from the commitment among emerging markets and gain confidence to create a whole new infrastructure to encourage economic growth. A trend that has certainly emerged is the tendency for countries with less comprehensive financial infrastructures or fewer payment options for consumers to embrace the concept of CBDCs. More so, however, is their shared awareness and desire to innovate.
A digital form of cash
After all, CBDCs enable convenience, security, and cost effectiveness by acting as a digital form of cash. They also drive efficiency and effective competition via interoperable payments platforms across networks. There are a number of emerging markets that are grabbing these opportunities and leading the way in digital finance.
A key example is the successful CBDC pilot by the Central Bank of Ghana. The early collaboration with financial intermediaries has enabled seamless CBDC transactions between mobile money and bank accounts. The project is a clear example of where seamless UXs and business opportunities can come about from interoperability.
Ghana is now set to support wider roll-out plans using insights from the trial, but there are some key considerations when introducing a CBDC project on a country-wide basis. One aspect is the relationship between corporate entities in the private finance sector and the central bank. Naturally, central banks want to avoid competition with the commercial entities, and a CBDC ecosystem should have defined roles in both the public and private sector.
The way that this would work in practice is that the public sector engages only when needed. The central bank is the provider of the open infrastructure and the private sector leverages the platform to engage with consumers and merchants. Early engagement with stakeholders is critical to its success, with financial intermediaries vital to onboarding, distribution and wide-scale adoption.
Encouraging inclusivity
Of course, wide-scale adoption is the key to success andas a digital version of physical cash, CBDCs provide the ability for every citizen to access convenient, secure digital payments. It acts as a ubiquitous and fully inclusive financial solution that people are able to use independently from the issuer. It’s estimated that as many as 1.4 billion adults remain unbanked, according to figures by the World Bank. Many of them are the hardest to reach and, without intervention, the next generation of ‘unbanked’ children will suffer from the same level of disconnection.
CBDCs promote participation in the digital economy and also crucially enable nations to leverage offline functionality, meaning a bank account isn’t needed. This presents a digital form of public currency that is simple to use, resilient and universally accepted. In addition, CBDCs can facilitate a more cost-effective method for cross-border payments for migrant workers. Small rural market vendors, who may have relied exclusively on cash previously, can now enable digital payments and open up a new source of revenue.
Endless possibilities
With myriad opportunities for growth, a collaborative CBDC ecosystem is ideally placed to shape tomorrow’s digital economy. It’s almost impossible right now to envisage all of the new business models and corporate benefits it could bring in the future, but it is highly suited to serving as the platform for innovation that’s safe and accessible for all.
It can be the driver for inclusion around the world. A globe that incorporates CBDCs is nearing fruition, and is being led by emerging market economies. It’s time for developed nations to not only look at what challenges CBDCs can overcome but the opportunities they can provide.
