The past year has seen many countries intensifying their work and moving plans forward to explore central bank digital currencies. There are now more than 100 central banks conducting studies or CBDC pilot schemes to foster financial inclusion and grow digital economies.
In 2022, digital money initiatives will continue at pace, making it the most important year for the development and progress of CBDCs worldwide. Many countries will be looking to cross the bridge from the research stage to announcing pilot projects. Some countries, like Ghana where we are involved, will start using insights and feedback from their first trial stage to adjust wider rollout plans.
The user needs to be at the centre of CBDC design
As the discussions and efforts to issue CBDCs speed up, central banks have a task on their hands to ensure successful public adoption. Conversations will shift, placing the users of CBDCs – including businesses – front and centre. Like the digital currency itself, the measures and strategy for adoption need to be tailored to meet the requirements of an individual country as well as expectations and concerns of consumers and businesses there. This is even more important as the digital economy brings new use cases and efficiency gains through the adoption of CBDC.
The potential lies in sharing power within the CBDC ecosystem
Central banks are guided by public interest, not by profit. Similarly, CBDCs have the power to let users participate in the digital economy independently from issuers – central banks. A CBDC can only ensure this if its design follows strict privacy by design principles and a share of power approach between government, businesses and consumers. While infrastructure and trust in the currency is guarded by the central bank, innovation, new products and services as well as consumer interfaces are developed by the market.
Innovative consumers and new businesses will drive CBDC adoption
A recent G+D and OMFIF survey has revealed a significant contrast in attitudes towards CBDCs between consumers in emerging markets and countries with solid digital infrastructure. In Nigeria, where a pilot project launched in October 2021, 91% of respondents said they were likely to use digital currencies, with 60% of consumers from Indonesia saying so too. However, these figures fall to just 24% in the US and 14% in Germany, suggesting CBDCs could offer a ‘leapfrog’ moment in payments in emerging markets rather than developed countries with well-established payment options.
There is also variance in awareness of digital currencies, with a visible correlation between attitudes towards CBDCs and familiarity with the concept. The survey has shown that 40% of consumers in both Nigeria and Indonesia are aware of CBDCs, compared to just 15% in the US. A greater focus should therefore be placed in the coming months on educating citizens in developed countries, with clear communication from central banks and private sector businesses about the convenience, security and low cost benefits CBDCs will bring. That way, we can all move closer to embracing digital currencies.
Functionality and trust will be essential for CBDCs adoption
To be widely accepted, a currency needs to be universal. It needs a general purpose while being fully functional in existing and future infrastructures and business models. People and businesses require functionality to use digital currencies in various scenarios, from offline peer-to-peer payments to automated machine-to-machine transactions. An innovative digital option needs to be inclusive for all use cases while evoking trust in the value of money among people.
It is the responsibility of central banks to ensure that trust and provide a secure infrastructure for financial service providers’ programme features, functions and mechanisms outside of the currency, enabling new processes and fostering innovation. G+D Filia – a universal CBDC protocol – follows a pioneering programmability approach to enable programmable payments and performs secure consecutive offline payments to ensure full digital as well as financial inclusion.
Collaboration is required to bring CBDC to life
To offer seamless experiences and ensure interoperability, greater collaboration between the private and public sector will be needed. While central banks will have to make sure the right infrastructure is in place to issue CBDCs, commercial banks and fintechs will take on a more consumer-facing and operational role. Their insights about user behaviour and success factors for adoption will be crucial for tailoring to the needs of individual countries and bringing CBDCs to life.
To say a new form of public money is on the horizon would be an understatement. CBDCs are offering an array of benefits to businesses and consumers alike and revolutionising our relationship with the digital economy. 2022 will be defined by the greatest progress in shaping the framework conditions and rules of a CBDC future, driving digital innovation and extending financial inclusion on a global scale.
Wolfram Seidemann is CEO of G+D Currency Technology.