TechInPacific – The application of digital currency in small islands finds challenges in how the dynamic, compared to developed and emerging economies differed.
In an interview with Regional Director at ADB Lotte Schou-Zibell, she revealed the Central Bank Digital Currency (CBDC) can solve financial inclusion, such as the high cost of remittances found in developing countries.
“CBDCs could give unbanked and underbanked communities opportunity to create credit history, critical for access to services offered by financial institutions. Financial inclusion is not about access to cash or digital currency. It is about access to the positive effects that come from the financial market,” Lotte explains.
One of the recurring problems has found people resolve to the alternatives institutions when they don’t have access to a bank account. These are people that might be further left out as the system is transitioning to digital means globally.
Many factors are put into consideration when it comes to normalizing CBDC in the Pacific. From dollarized or hard currency pegs phenomenon, offline functionalities, payment for retail users in small islands, internet access, and the mutually balanced partnership between the public and private sectors.
“Offline capabilities are important considerations as any digital system, including digital currencies, are exposed to outages, especially in small island nations. Sveriges Riksbank suggests that a centralized ledger-based CBDC could offer offline functionality. Other ways of dealing with the problem include rechargeable cards, quick response code-based prepaid cards, and smart chip-enabled banknotes,” Lotte said.
According to Lotte, the problem of internet access that could potentially hinder small retail transactions can be managed with internet satellite technology.
“There is no way around the problem of internet access. However, numerous initiatives promise to make the internet more affordable and available. The Manatua cable has landing points across the Pacific. The launch of the Asia Pacific remote broadband internet satellite project, which will serve 25 countries, is expected to lower data costs and increase bandwidth for areas that have been lagging.”
Smartphone penetration is also viewed as a critical measure to run CBDC smoothly.
“Only 3.5bn people own one and smartphone penetration will not reach 100% any time soon. Before governments turn to CBDCs, they must increase smartphone penetration.”
“Know-your-customer policies are important but require a personal ID system. The Asian Development Bank is supporting a project to establish know-your-customer procedures among money transfer operators in Samoa.”
Lotte also suggested the presence of an education campaign led by agencies that partner with local community groups and leaders to deal with complaints related to the digital currency’s skepticism and fears.
And lastly, she discussed the pathways to a public and private partnership.
“A CBDC could be supplied through a public-private partnership, where the central bank supplies the critical infrastructure while the private sector can compete at the customer level.
“The private sector would support further development through innovation and develop user-friendly solutions, something a central bank may be less well-placed to do.”