Central banks are seemingly looking to steal the show from decentralized cryptocurrencies as they are also aiming to increase financial inclusion by issuing central bank digital currencies (CBDCs).
China
"We still have a lot of remote areas, or poor areas, and in those areas people are underbanked and they cannot enjoy mobile payment services. This is why we’re promoting CBDCs to bring financial inclusion," Changchun Mu, Director-General of the Digital Currency Institute of the People’s Bank of China (PBoC), said during a panel discussion at BIS Innovation Summit, an event hosted by the Bank for International Settlements (BIS), today.
According to him, in China, cryptocurrencies have been largely perceived as a threat to the country’s monetary policy by local decision-makers, stimulating work on the roll-out of the digital yuan.
Meanwhile, local payments giants such as Alipay and Tenpay dominate in China’s mobile payment market which means that “if something bad happens to them, either financially or technically, this would definitely bring a negative impact on the financial stability of China,” Mu said.
“To bring back-up, or redundancy … the central bank needs to step up and provide a CBDC to the retail payments market,” he added.
The Bahamas
Elsewhere, financial inclusion is also named as the main driving force behind CBDC projects. John A. Rolle, Governor of the Central Bank of The Bahamas that launched its CBDC project in late 2019, said that while the nation has very high levels of financial inclusion by global standards, populations inhabiting some of its smaller islands are deprived of access to banking services, encouraging the introduction of a CBDC, he said.
“We see it as a means to promote financial inclusion goals, as an opportunity to address interoperability challenges,” Rolle said. “We also want to ensure complementarity with our traditional banking sector.”
Rolle said the bank ensured that a regulatory framework was put in place before the institution launched “a gradual process of making this instrument available to the population.”
“One interesting side of the design … is that in the cash world, there is no distinction between a minor and an adult” and “we want to make sure there is no age discrimination” in the population’s access to the CBDC, he added.
Sweden
Meanwhile, Hanna Armelius, Senior Advisor at Sweden’s central bank Sveriges Riksbank, said that cash has been falling out of use in Sweden very fast, as observed back in 2017. Over a decade, the use of cash in retail decreased by about half, she said.
“We are the oldest central bank in the world. The Riksbank has been supplying cash to the Swedish society for more than 300 years,” Armelius said. “We had to prepare ourselves for a future in which cash will no longer be used by the Swedish society.”
The e-krona project “is not as advanced” as the ones in China and the Bahamas, according to Armelius.
“We have sent a petition to our parliament to look at the legalities of the use of CBDCs,” she said, adding that a political decision was required to move forward with the project.
A public-private partnership was one of the considered models for the Swedish CBDC project, she said.
A chance
Kristine Braden, Head of Europe and CEO at Citigroup Global Markets Europe, observed that the future role of banks in a world in which populations have broad access to CBDCs would consist of “investing, adapting and ultimately advising”.
“Banks and the commercial sector that work across the payments sector really have a chance to adapt to this world,” Braden said. “From my perspective, building interoperability into our systems is going to be key.”
A global shift towards CBDCs would require banks to invest significant funds into ensuring interoperability and speed, according to her.
“One of the biggest challenges is speed. Many of our operating systems are not operating 24 hours a day,” she said. “It’s going to be an investment to modernize the existing systems properly so that they interact with CBDCs.”