Home Retail What value can retail CBDCs bring to society? –

What value can retail CBDCs bring to society? –

by Ozva Admin

While research on central bank digital currencies (CBDCs) has been increasing rapidly, many larger economies, including the EU and US, have yet to make a decision on whether or not to issue a retail CBDC. However, most are running experiments to understand the possibilities, as well as starting additional discussions with other players in the ecosystem.

“It is a historic opportunity to build a new infrastructure,” says Wolfram Seidemann, CEO of Giesecke+Devrient (G+D) Currency Technology.

He believes that smaller and emerging economies, which have problems with financial inclusion and payment system efficiency, are set to go the CBDC route. For example, G+D recently signed a contract with the Central Bank of Eswatini to explore the development of a retail CBDC.

G+D is currently working on a pilot project with the Bank of Ghana (BoG), in which the central bank integrates with commercial and non-bank banks, fintechs and mobile money providers. “We create interoperability, making it possible to exchange money in a bank account to mobile money to eCedi [the BoG’s CBDC]”, says Mr. Seidemann.

The BoG did not issue an eCedi application, as was done for eNaira in Nigeria. Instead, G+D integrated the ability to transact with eCedi into the applications, products and services of various commercial players already in the market. For example, a customer can choose the eCedi option in the Vodafone app, or download money from their eCedi bank account, or exchange eCedi into mobile money that can be sent to another participant.

Says Seidemann: “In my opinion, that is the right approach, because the central bank is not there to compete with the commercial sector; it is there to provide the public infrastructure that enables others to build new schemes, products and services, and then to fill the gaps if private actors are not addressing all market sectors, to achieve financial inclusion.”

How can CBDCs solve financial inclusion and add value to society? He draws an analogy with cash, as the only fully inclusive financial instrument today. “The value of cash is enormous for society, because it is the only instrument that the user can use regardless of the issuer,” he says. “And we would like to bring that value to the digital space.”

All other payment schemes have not reached the level of ubiquity of cash, he argues, because they are private business models driven by profit, rather than public interest, which omits certain segments of the market. In the case of CBDCs, this is where the central bank or government needs to step in, he explains.

“Legal tender has to be ubiquitous and available to all sectors of society, so it cannot rely on complicated and expensive technology. It has to be simple, easy to use and accepted everywhere”, says Mr. Seidemann. “As such, the platform must be designed in a way that it can perform complex automated smart contracts and simple person-to-person payments in an offline environment.”

In Ghana, part of the pilot was completely off the grid in a rural setting; people received cards as a simple digital device. (If they had a mobile phone, they could use it too.) The merchant received a simple device that could connect to the cards. Importantly, the cards carried the central bank’s seal, the governor’s signature, and some security features normally associated with banknotes to convey the confidence people have in the currency.

“That worked very well: people immediately accepted the eCedi cards and started making transactions,” according to Mr. Seidemann. “Some even brought a packet of cash and asked the merchant to exchange it for eCedi on the card because it was easier to store than cash.”

The same platform used for currency issuance and verification can also be used in smart contracts or automated payments, where banks and fintechs can offer new products and services. For example, programmable wallets, which are restricted to special purpose payments.

“Citizens can receive wallets that allow them to access government subsidies that can only be used for education,” says Mr. Seidemann. “Once the token is spent, it goes back to being ubiquitous and universally usable. This is where innovation comes into play and where new business models can be developed.”

Clearly, the development of digital money will have an impact on G+D’s business as a cash printer, but to what extent is not yet clear. “We don’t yet know if people will use less cash, debit cards or other payment options. Today, people try all the options and keep cash as a backup, but will it stay the same? asks Herr Seidemann.

“As we are witnessing today, people are back to the familiar during a crisis and cash is increasing in circulation,” he continues. “We have developed a strong value proposition for cash and we continue to invest in that. Also, we are trying to develop a CBDC that will keep the democratic cash value in the digital age.”

Joy Macknight is editor of The banker. Follow her on Twitter @joymacknight

Record to receive the Publisher’s blog and detailed coverage of the banking industry via the weekly email newsletter.

You may also like

Leave a Comment