This article is from www.blocknews.com.br and the original article can he read here in Portuguese
Digital currencies from CBs can help financial inclusion, says BIS study.
Retail-focused central bank digital currencies (CBDCs) could serve to create a basic level of quality financial service and to put competitive pressure on private institutions. In this way, with their digital currencies, central banks can help, for example, to accelerate the adoption of digital payments, fighting financial exclusion. This is especially true in markets with insufficient size and profit potential to attract innovation from the private sector, or in markets where there are monopolies.
Because they have the capacity to be a low-cost public product, in addition to the technological innovations they allow, CBDCs will be able to cover the space that private solutions leave. These are some of the conclusions of a study by the Bank for International Settlements (BIS), the CB of CBs. To realize “Central bank digital currencies: a new tool in the financial inclusion toolkit?”, in the second half of 2021, the BIS interviewed nine countries studying CBDCs with a focus on retail. They are the Bahamas, Canada, China, the Eastern Caribbean, Ghana, Malaysia, the Philippines, Ukraine and Uruguay.
The BIS study says that for many BCs, governments’ digital currency could be in a format that involves all payment service providers, banks and non-banks. In addition, they could offer benefits such as new interfaces, cheaper service fees and greater access to payment systems. Thus, central banks claim that their digital currencies could be another tool to promote financial inclusion, although they cannot do it alone.
Brazil is also studying its digital currency. The next phase of the national project is the start of use case testing. The project coordinator at the CB, Fabio Araújo, has stated a few times that there are three types of CBDCs under development. One type includes, for example, the European Union and Switzerland. There is a front that works on instant payments, something like Pix, and that includes China and the Bahamas. Brazil, he says, is in a third group, promoting technological and business models, along with countries like Canada.
For part of the central banks that participated in the interview, it is important to continue to study CBDCs from the point of view of innovation. But the modernization of payment infrastructures, with the launch of fast systems, may be the most direct way to fight financial exclusion.
Another important point of the study is that CBDC projects need to facilitate registration and financial education. This involves implementing streamlined due diligence processes. Projects should also consider the need to ensure data privacy and prevent misuse of consumer data.
The purpose of this is to ensure that users trust CBDCs as much as they trust money in other formats, such as paper money. One way to do this is to separate individual transaction data from identity information. And put privacy at the heart of government digital currency formatting.