Some central banks recognized the importance of the digital national currency mega-trend very early on, with China, South Africa, and Ghana being among the countries already piloting solutions. The European Central Bank is likewise currently considering whether and when it might be feasible to issue a digital euro. The South-East Asian city state of Singapore is also evaluating the possibility of introducing a central bank digital currency (CBDC). In 2021, the Monetary Authority of Singapore (MAS) launched the Global CBDC Challenge, a competition whose jury included representatives from the International Monetary Fund, World Bank, OECD, and UN organizations. Some 300 providers from 50 countries took part. G+D’s Filia® solution was one of the three winners of the competition. The jury praised Filia® as a universal, truly inclusive payment method, which enables users to participate in the digital economy even without having a smartphone or bank account.
Central bank digital currency – early adopter countries lead the way
Cash is the most widely used payment method in the world and will soon also be available in digital form as a legal and trustworthy means of payment. More than 100 central banks are currently working on a central bank digital currency (CBDC). A solution developed by Giesecke+Devrient in this field was one of the winners of an international competition in late 2021. G+D Filia® enables countries to offer their citizens and economic actors a secure, universal, and inclusive digital payment method.
“Users don’t need a bank account or a smartphone – and it’s even possible to pay with these cards during a power outage thanks to the batteries in the payment terminals.“
Managing Director for the Central Bank Digital Currency unit at G+D
The many digital payment methods and how they differ
There are many options for digital payment in everyday life. They vary in terms of the technology used, how long they have existed, their popularity, the fee structure, and the level of security.
Inclusion concept wins customers over
Filia®, the CBDC solution developed by G+D, also enables a major step towards achieving financial inclusion. People in less developed regions, refugees, and victims of natural disasters often have no or limited access to modern infrastructure. There may be a lack of local banks, Internet connections, cell phone networks, smartphones, and stable power grids. “With this solution, G+D is making it possible for more people to participate in the digital economy, thereby opening up many opportunities that don’t exist at the moment,” says Raoul Herborg, Managing Director for the Central Bank Digital Currency unit at G+D.
The African state of Ghana is one of the countries that finds this argument compelling. The Bank of Ghana has partnered with G+D to pilot the introduction of a digital central bank currency – the e-Cedi. The project is part of the Digital Ghana Agenda, involving the digitization of government services in this country of 30 million people. Generally speaking, digital central bank currencies are enthusiastically welcomed in developing and emerging countries. A study carried out by G+D and think tank OMFIF revealed that more than 90 percent of respondents in Nigeria would use CBDC, with 60 percent saying the same in Indonesia. By contrast, only 24 percent of respondents in the USA and 14 percent in Germany are currently open to the idea of a digital currency issued and managed by the state.
Digital central bank money: preconceptions that need addressing
A great many central banks are working towards introducing central bank digital currencies (CBDC). Soon, more and more people will be carrying their national currency in digital form on their smartphone or a card and using it for payments. To be properly prepared for this new digital money, people need to be able to tell fact from fiction:
Very strong data protection and IT security
The list of CBDC advantages is extensive: “Digital central bank currencies combine the advantages of cash with the convenience and speed of cashless transactions,” says Herborg. CBDC is legal tender that is created, put into circulation, controlled, and guaranteed solely by central banks. Users are therefore protected against the interests of third parties, who are able to collect data or speculate more easily with non-CBDC payment methods. A key advantage is that CBDC must be accepted in principle everywhere, like cash – in stores, restaurants, taxis, and at gas stations. Unlike with commercial offerings from financial services providers, it is not necessary to open a customer account. In addition, customers do not pay any fees and do not leave a digital footprint. Just like banknotes, digital money does need to be protected against counterfeiters, criminals, or cyber attacks, though. “Future central bank digital currency systems will meet the strictest security requirements in terms of technology – even when extremely powerful quantum computers become widely available,” emphasizes Herborg.
Digital central bank money will be a valuable addition to the world of payment in the near future and support entirely new applications. For example, in the Internet of Things (IoT), the rapidly growing number of connected machines and devices could make electronic payments to each other. And wouldn’t it be convenient if cars paid parking fees themselves? If central banks first want to test what impact the introduction of a CBDC might have on their economy and financial system, they can find out at G+D. In 2021, we invested in FNA, a British fintech that has developed a globally unique CBDC simulator. This tool generates valuable insights to support the carefully planned, data-driven introduction of a digital national currency.
Published: 31/03/2022
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