Which of these countries sound economically advanced to you?
- The country where the largest retail chain allows customers to pay using the country’s Central Bank Digital Currency (CBDC)
- The country where the government only issues tax refunds in the form of paper checks
- The country where a common blockchain ledger has reduced banking costs
- The country where adoption of a CBDC will depend on how it affects ‘the role of banks in our society’
The countries referred to are: the United Kingdom, India, Canada and Cambodia… but not in that order.
India is the country where the largest retail chain, Reliance, is rolling out the capacity to take payment from customers using the country’s new CBDC, which is variously known as the Digital Rupee, e-RUPI, e₹, or eINR. V Subramaniam, Managing Director of Reliance Retail, told CNBC-TV18 that his business will eventually accept the CBDC across all its 17,000 stores:
India’s adoption of digital currencies has not been especially rapid compared to some other Asian countries. For example, the National Bank of Cambodia (NBC) launched its digital currency, the Bakong, in 2020. The World Economic Forum (WEF) praised the advantages of the Bakong for ordinary Cambodians.
The National Bank of Cambodia (NBC) developed the Bakong system along with Japanese technology company Soramitsu using the open source Hyperledger Iroha blockchain framework. The flexibility of using a blockchain for digital asset management allowed NBC and Soramitsu to implement fiat-backed digital representations of the Khmer riel and US dollar that would be accessible for wholesale interbank transactions as well as everyday retail payments.
The NBC Bakong core system is geographically distributed and contains all transactions, but no personally identifiable information (PII). Rather, all end-users’ PII is stored by the financial institutions that join the system. In turn, financial institutions only receive transactions on which their users are counterparties, and do not have access to all transactional data in the system. It is this separation of data that helps to preserve the privacy of users, while still allowing for the central bank to view all transactional activity and consider these data to improve their monetary policy. Thanks to the inherent security features of the blockchain and the associated ledger copies, the risks of fraud, hardware failure, tampering, and, most importantly, cyberattacks are mitigated.
…the permanent digital record of all transactions makes payment systems like Bakong easily auditable and thus unsuitable for criminal activity.
Bakong also boosts user inclusivity by helping to integrate people into the financial system. Easy-to-use digital tools and nearly nonexistent transaction costs incentivize users to take part in and contribute to the system.
Digital currencies are also good for telcos in general because of how they use internet and mobile technologies without tying users to any specific network. Contrast the benefits of the policies adopted by forward-thinking Asian countries with the woefully backward financial services in Canada, just one of the Western countries where the government uses paper checks to repay the money its owes to citizens, and where an outage for just one telco knocked out card-based payment systems and ATMs across the whole country.
But it was the UK’s central bank, the Bank of England, which hinted at the real reasons why rich Western countries have been slow to embrace the benefits of CBDCs.
…there are potential risks that we want to fully understand before we make any decision on a CBDC. That’s why we are looking carefully at them now.
One of these is what a CBDC would mean for the role of banks in our society, particularly as a source of lending to households and businesses.
Who cares about maintaining the current role of banks, except those mega-rich and overly powerful bankers who want to remain mega-rich and overly powerful by profiting at the expense of everyone else? London is one of the biggest banking centers in the world but ordinary people can get better, cheaper banking services in Mumbai and Phnom Penh. When the UK’s central bankers worry about ‘risks’, they are not thinking of the risk that consumers might get cheaper, superior services. To emphasize how little they are seriously evaluating the risks, consider the next reason they offered for delaying the adoption of a CBDC in the UK.
Another is how would it affect the work we do to keep the rate of inflation low and stable.
Oh really? The Monetary Policy Committee of the Bank of England has only one job: to set monetary policy so inflation hovers around a 2 percent target. The UK does not have a CBDC, but it has attained a level of inflation that is currently well over 10 percent.
It is a sign of how far the West has fallen behind that this week the UK finally announced a vague plan that could lead to the creation of a British CBDC… but not before 2025. The selectively insular nature of Western news reporting encourages an unjustified belief that Western economies must always lead technological innovation. The reality is that the West’s adoption of game-changing technologies lags other countries in many respects. How else can we explain that the BBC’s Economics Editor referred to the aspiration to deliver a British CBDC as ‘monetary science fiction’?.
There is no fiction or fantasy in the technology to manage money via a secure common internet ledger. It exists and is proven already, and is preferable to managing money through thousands of different ledgers maintained by an endless series of privately-owned systems run by banks, credit card companies, payment processors and online wallet providers. Much of the resistance to CBDCs in countries like the UK will come from people who insist they routinely use cash. This bears little relationship to how most people now behave, especially in the post-COVID era. I cannot remember the last time I put a bank note in my wallet because I never use cash to pay for anything.
Whilst some Westerners are pretending CBDCs represent an unjustifiable leap into a dystopian future because nobody has experience of using them, the reality is that digital money is already established as an aid to the lives of ordinary Cambodians. Cultural arrogance prevents Western economies from openly admitting they should be learning from the experience of the Asians who lead the adoption of CBDCs. Perhaps it is not a coincidence that the creation of a British CBDC is actively supported by the first British Prime Minister of Asian heritage, Rishi Sunak.
Meanwhile, the central bank in Laos has just announced it will follow the lead of Cambodia by also working with SORAMITSU to implement its own CBDC. Per the press release issued this week:
The Bank of the Lao PDR Payment Systems Department and SORAMITSU Co., Ltd. have signed a Memorandum of Understanding (MOU) to launch a Central Bank Digital Currency (CBDC) Proof of Concept (PoC) on the 6th of February, 2023.
From the 7th of February, officials from the Bank of the Lao PDR, the Embassy of Japan in the Lao PDR, and JICA will all contribute to the CBDC PoC in Laos. For this PoC, SORAMITSU has provided Lao PDR with a modified system based on the proven “Bakong” system, which has been operating smoothly for two years since its official launch in Cambodia, in October 2020.
Laos wants the same benefits delivered by CBDCs elsewhere.
The objectives of a CBDC implementation by the Bank of the Lao PDR are:
- Financial inclusion to the broader population, in order to provide digital financial services to people who do not have access to bank accounts;
- Cross-border remittances, to reduce remittance times and costs from migrant destinations such as neighboring countries;
- CBDC is a way to advance the sophistication of payment systems, as well as ensuring economic security through a local currency that does not depend on other countries.
I applaud these Asian countries, who are taking great strides forward which will benefit the majority of citizens. And I scorn Western countries where scaremongering Luddites conspire with vested interests to keep forcing individuals and businesses to use paper checks and pay excessive banking fees.
The rot in the West is not even unique to banking. Anyone following recent telecoms and internet industry debates in North America and Europe will have noticed they are dominated by telco demands for subsidies to help them pay for new networks whilst asking for mergers so they face less competition. Instead of racing forward and generating new wealth, the West is mired in endless unproductive arguments about the supposed need to redistribute money from one place to another, as if Western economies are bound to grow more rapidly if banks and telcos receive ever-bigger handouts. Ironically, this occurs against a backdrop where we also make it unnecessarily difficult and expensive to move money from one place to another.
Consider fraud, a perennial problem that everybody says is causing an enormous drain for banks, telcos, and Western economies in general. Who is spending money on tackling this problem, and how much are they spending? The amount being spent on preventing fraud is trivial compared to the economic harm done by fraudsters. However, we have a management class in Western companies and Western governments that simply will not make rational investments in activities like fraud prevention. Many find it is easier to moan until a government gives them another subsidy or permission to exploit customers through dumb monopolistic business practices.
Meanwhile, a dynamic Asian business like SORAMITSU has also developed a blockchain which telcos are using to exchange fraud intelligence free of charge. Unlike the Excel spreadsheets and email attachments that most of the telecoms industry would like to keep using, SORAMITSU’s fraud blockchain is cryptographically secure, can be accessed via an API, and issues tokens that are earned and spent by users as they upload and download data, thus ensuring an equitable outcome for all users. The result is that telcos can keep downloading new fraud intelligence for free if they also upload their fair share.
There are some Western telcos, like Vodafone, which have the imagination to actively engage with the fraud blockchain. But I expect most user growth will come from telcos in Asia. More and more of my research suggests that Western banks, telcos and other big businesses are stagnating because of a complacent disregard of new methods that could reduce costs and increase profits whilst improving customer satisfaction. What little money they spend on vital areas like fraud prevention gets wasted because fat cats lobby for boondoggles like STIR/SHAKEN, which does not reduce fraud for customers of telcos or customers of banks, but which does make money for yet another insidious monopoly in each country that adopts it.
The world can be made a better place for all. The question we need to keep asking governments and big businesses is whether they are trying to make the world better for all, or if they only aspire to make their tribe richer by making everyone else poorer. Attitudes towards technological innovations like CBDCs and blockchains are a useful indicator of who is embracing a better future and who seeks only to maintain their position by slowing the pace of change.