The World Bank reports that after the COVID-19 pandemic, up to 1.4 billion people were found to be unbanked. This population is dispersed around the world but with more concentration in developing nations.
Due to these concerns, experimentations around the next stage of global financial structure for inclusion has been a major topic for discussion.
Amongst all options being tested to enhance how we create, access, use, and store money, CBDCs and DLT-based payment systems are at the forefront. Speaking at a panel on the topic, “In the Face of Fragility: Central Bank Digital Currencies”, at the World Economic Forum, Lieve Mostrey, Chief Executive Officer, Euroclear said that the greatest challenge to implement these new technologies being discovered is migration.
This means that moving people and resources from the traditional systems where they reside and are familiar with to new infrastructure is a huge task government and all stakeholders in the financial world will face.
Experimentation with the Bank of France
Sitting as the CEO of an organization that processes more than a quadrillion euros worth of securities annually, Lieve explained that the project her team worked on alongside the Bank of France, in issuing digital binds on-chain, was an opportunity to learn first-hand about the performance of CBDCs and DLT solutions.
After the issuance phase of the bonds, the next phase of settlement of transactions also exposed several lessons to be learned about the systems being developed. She observed that for there to be a successful use case for any technology in finance there is a great need for cross-collaboration between Central Banks and the private sector.
Lieve also advised that factors such as the safety of users, efficiency of the system, interoperability with the market, and measuring the ROI of any development against the investment for developing such infrastructure is important. Without interoperability, public-private partnership, and experimentation to learn together, it is impossible to migrate into CBDCs.
Reasons for using CBDCs
Speaking in the same panel was the governor of the South African Reserve Bank, Lesetja Kganyago, who said that several countries have different reasons for venturing into cbdcs. He noted that while domestic failure & financial inclusion, making payment efficient, and modernization of Central Banks to include innovative payment infrastructures are examples of those reasons, governments should be clear on the reason behind any CBDC implementation.
The governor admonished that based on the recent wholesale CBDC pilot initiated in South Africa, thoughts should also be given to the real use cases of CBDCs, public choice and preferences, regulations, and governance before issuing any CBDC.
He added that although the results from the CBDC were impressive with 70,000 settlements implemented in 2 hours, compared to the 24 hours usually required by South African banks, South Africa will be a fast follower of the innovative changes as going ahead of others is complex.