What emerging markets can teach about CBDC innovation

Adoption is being driven by countries with less developed financial ecosystems

Despite challenging global market conditions in 2022, the digital world has continued to evolve. Forecast to become a $13tn business by 2030, the metaverse economy offers a growing range of revenue streams, while e-commerce and internet of things payment markets are also projected to thrive. Alongside these developments, central bank digital currencies enable banks and non-banks alike to build inclusive and pioneering digital schemes, products and services, bridging the gap between cash and the digital world.

Emerging markets like Ghana and Eswatini are ahead in unlocking the value of CBDCs, leading the way in digital payments innovation. Developed markets can benefit from the pioneers’ learnings. This should give them the confidence to take their own bold steps towards digital public money, following the lead of emerging markets by developing a whole new infrastructure for economic growth.

CBDC adoption is being powered by countries with less developed financial infrastructures or less competitive consumer choice. However, another shared characteristic sets these emerging markets apart – a keen awareness of the need to innovate.

As a digital form of cash, CBDCs bring benefits including convenience, security and cost effectiveness. They also spur digital innovation by offering network effects. This is vital for creating effective competition and efficiency through interoperable payments platforms.

Emerging markets are seizing these opportunities to innovate and keep pace with the changes in digital finance. For example, Giesecke+Devrient carried out a successful CBDC pilot with the Bank of Ghana, where swift integration of financial intermediaries is enabling the frictionless flow of CBDC between mobile money and bank accounts. This project highlights the benefits of interoperability in supporting seamless user experiences and new business opportunities. Ghana is now set to use the insights and feedback from the trial to support wider rollout plans.

In introducing a CBDC, strong public-private collaboration is key to success. After all, central banks do not have to and do not want to compete with private financial entities. A CBDC ecosystem should be created by distributing roles between the public and private sector. The public sector engages only if there is a gap to fill.

While the central bank provides the open infrastructure, the private sector innovates on the platform and interacts with consumers and merchants. This is why early stakeholder engagement matters: financial intermediaries are crucial to on-boarding, distribution and wide-scale adoption.

Countries like Ghana and Eswatini aim to build diverse ecosystems where the core infrastructure is provided by the central bank and customer-facing services and products are developed by private players. Such public-private partnerships create trust in the currency and convenience of innovative financial services.

Everyone should have access to convenient, secure digital payments and other financial services. CBDC has the potential to make this a reality. It is a digital version of physical cash – a ubiquitous and fully inclusive financial instrument that people can use independently from the issuer.

For the 1.4bn unbanked adults globally, as well as unbanked children who form the next generation, CBDCs promote participation in the digital economy. This should also inspire developed nations to leverage offline functionality, where a bank account is not needed, and introduce a digital form of public currency that is simple, resilient and universally accepted. CBDCs could ease life for many people by offering a cheaper way for cross-border payments for migrant workers or enabling digital payments for small merchants like rural market vendors.

With the potential to shape tomorrow’s digital economy, a collaborative CBDC ecosystem will deliver fast adoption and strong growth opportunities. It’s hard to imagine all future use cases for a CBDC and the new business models it could bring, but by providing a trusted and solid infrastructure with public interest at heart, CBDCs could serve as a platform for innovation that’s safe and accessible for everyone. It will provide added value to societies, serving as a driver for future innovation and inclusion across the globe.

A world with CBDCs is drawing near. Emerging market economies are forging the path towards a reimagined digital economy. To become participants, developed countries should not ask what problems CBDCs could solve, but see the opportunities they bring.

Wolfram Seidemann is Chief Executive Officer at Giesecke+Devrient Currency Technology.

This article was originally published in the Digital Monetary Institute annual 2023.

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