Digital payments innovation in different regions of the world is being spurred on by Central Bank Digital Currency (CBDC) adoption, as nations experiment with new payments options that can be more inclusive and dynamic. 130 countries are currently exploring the possibilities with CBDC adoption, which allows for digital money to be supported and used publicly alongside cash whilst supported by the nation’s central bank.
Central banks in Ghana and Eswatini have made progress from introducing CBDCs to their countries, and have seen benefits emerge. CBDC usage has proved cost-efficient, convenient, and more secure than other digital payment methods. With the intention of prompting more of the 1.4 billion unbanked population engage in the digital economy, these initiatives have seen key developments and could pave the way for new markets and networks in the global digital payments sector.
Speaking to Finextra on the progress seen on the CBDC front in both Ghana and Eswatini is CEO at Giesecke + Devrient Currency Technology (G+D), Wolfram Seidemann.
The Bank of Ghana has committed to a national digital currency, and Eswatini is similarly conducting research into CBDC adoption.
On G+D’s collaboration with Ghana and Eswatini, Seidemann says that the CBDC pilot with the Bank of Ghana proved a successful integration of financial intermediaries that facilitated seamless interoperability and enhanced user experience capabilities. Ghana is set to expand CBDC adoption using key learnings from the pilot.
Commenting on G+D’s work with Eswatini’s research into CBDC, Seidemann states: “The appointment stems from the completion of the first phase of the CBDC Diagnostic Study conducted in 2020, which revealed that a retail CBDC presented the best opportunity for the adoption of a digital currency in Eswatini. The central bank can use insights from the project to understand how a CBDC can provide additional benefits and ensure continued access to central bank money, contributing to the development of its resilient payment system. Just recently, it published its initial Digital Lilangeni Design Paper which sets out the design characteristics of a potential retail CBDC in the country. The aim of both projects is to achieve a diverse CBDC ecosystem.”
Seidemann explains that G+D provides expertise on public currency technology, cryptology, smart cards, and digital and mobile payments to central banks and financial institutions conducting research on and implementing CBDCs. G+D Filia is a solution that supports central banks in operating CBDCs nationally and meeting security and resilience standards.
Seidemann states that the adoption of CBDCs in different regions varies based on the financial regulations and infrastructures in place: “We’re seeing that CBDC implementation is being powered by countries with comparatively less developed financial infrastructure and/or fewer competitive consumer choices. These countries are eager to innovate and benefit from convenience, security and cost effectiveness, providing well-developed nations with pioneering learnings to take their own bold steps towards digital public money.”
The lack of standardised regulation could pose a threat to global adoption of CBDCs, and there is a long road ahead for the concept to be accepted as a universal digital currency. While numerous countries are implementing national CBDC schemes, an international framework must be set for CBDCs to thrive in the long run. Seidemann emphasises the need for the public and private sector to collaborate to make an international CBDC framework a reality, and that this extensive process will require ample discussion and massive cooperation of regulatory bodies.
“The EU Commission recently took a first important step in the right direction by presenting a draft law on the introduction of a digital euro. With this, the EU is seizing the opportunity to take a global leadership role in the development of a digital currency for the European people and its economy. It is now a matter of exploring the numerous practical applications of the digital currency and demonstrating its relevance in everyday life.”
For the future of CBDC adoption, Seidemann imagines that public and private sectors would work together, with central banks creating a public infrastructure and flexible technology platform, allowing the private sector to develop a variety of business cases that would be governed by regulatory policies.
With national rollouts of CBDCs, there needs to be standardised and easy-access interfaces for financial institutions to utilise and an offline option in case of offline emergencies or lack of internet access.
Seidemann outlines that there will be a large amount of applications for CBDCs in the future that will strengthen financial systems. He explains that the universal acceptance of CBDCs will open up the market for numerous automated payments though as programmable features, such as facilitating government direct-to-person payments and programmable wallets in electric cars to automate charging station payments.
Seidemann concludes: “A lot of people ask ‘what problems does a CBDC solve?’ But today, I would like to invite you to take a different perspective and rather ask the question ‘what opportunities can a CBDC bring?’
“When the first smartphone was developed back in 2007, it was a sleek and powerful device that captured the imagination of the world with its innovative touch screen and user-friendly interface. Little did anyone know that it would not only redefine mobile communication, but also transform the entire internet landscape. Today, we have millions of apps and completely new business models based on smartphones – by adding CBDCs as a platform to the payment landscape, the potential use cases can be as wide as our imaginations."