Her Majesty Queen Máxima of the Netherlands, the United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development (UNSGSA), delivered opening remarks at the Seminar on CBDCs and Financial Inclusion: Risks and Rewards during the IMF - World Bank Annual Meetings at IMF Headquarters in Washington D.C. on 14 October 2022.
These are difficult times for people everywhere, and we are all seeking new ways to tackle the challenges before us – from Covid, to conflict, to inflation, to climate change.
In that context, the rise of inclusive finance offers a genuine good news story.
Over the last decade, a quarter of the world’s adult population has gained access to financial services.
Today, 76% of adults globally are now in some way financially included.
This has provided billions of people with new opportunities to build resilience, weather shocks, and invest in a more prosperous future.
Today we are here to discuss a potential new tool - that many see as an opportunity to increase inclusion even further.
Central banks around the world are considering whether to issue their own digital currencies – or CBDCs – and are eager to understand the opportunities and risks that they might bring.
If designed and implemented with inclusion in mind, CDBC’s could offer many options to expand access to the unbanked, and to serve the vulnerable and the poor.
But they also pose new challenges and risks, which will require sound approaches to overcome. So, I am encouraged that we are doing our homework, and proceeding with a certain caution.
Financial inclusion often starts – but does not end - with the ability to make and receive payments.
As we know, traditional financial services create many roadblocks for the poor - such as transaction fees, minimum account balances, or formal proof of identification.
New digital financial services also face obstacles, such as a low level of trust in digital systems, and the lack of smartphones among some groups.
CBDCs could help provide the best of both worlds: encouraging providers to lower costs and broaden access, while also incorporating the advantages of central-bank money – such as safety, finality, liquidity, and integrity.
CBDCs could also aide in upgrading and connecting payment systems – both domestically and across borders. With all the benefits of having interoperable systems.
Countries with limited financial infrastructure could leapfrog directly to a CBDC arrangement, connecting to an inclusive, safe, and efficient payments system.
But all these possible advantages are not a foregone conclusion.
The implementation of any CBDC would need to be accompanied by policy reforms and safeguards, to address potential difficulties and risks.
These include low levels of financial and digital literacy, and operational challenges, including cybersecurity.
Policy reforms should also prevent disintermediation: that is the danger that money will be held in large amounts in CBDC wallets, rather than as deposits in commercial banks.
That could make it unavailable for lending, for mortgages or working capital for small entrepreneurs.
A good design of CBDCs could help give people more control over their transaction data, and the ability to share it with a wider set of financial service providers.
Yet growing concerns about data privacy would need to be addressed, by hardwiring personal data protections into the structure of a CBDC.
It is clear that more dialogue, research, and trials are needed, to show how and when CBDCs can best become engines of financial inclusion.
And more work is needed to understand their unique value addition vis-a-vis existing payment systems, such as mobile money, or real-time high-volume digital payments.
So how to proceed further?
The Bank for International Settlements, the IMF, and the World Bank can help governments and central banks to exchange knowledge and undertake research, alongside academics such as those at MIT’s Media Lab.
Global platforms, like the G20 and G7, can provide venues to develop common understanding and principles, and possibly standards.
TechSprints, like the one ran by the Indonesia G20 with the BIS’s Innovation Hub, give us a chance to see innovative private sector use cases and solutions.
And the World Bank, the GIZ, and other donors can mobilize the finance needed to test and assist in the design and implementation of CBDCs in emerging economies.
By bringing partners together, we can build more understanding of how to balance design choices between privacy protection and transparency, and to ensure both financial inclusion and financial integrity, and, of course, stability.
If designed properly, CBDCs could hold great promise to support a digital financial system that works for everyone. But that is an important ‘if’.
So, I sincerely look forward to today’s discussion. Thank you very much for your commitment and please do not forget the inclusion dimension of this conversation.