This article addresses the issue of exploring the benefits of central bank digital currencies. The author emphasizes that national digital currencies can reduce dependence on commercial banks as the main interface for money management and increase optionality for consumers, many of whom are beyond the reach of physical bank branches or excluded from the financial system due to poor lending or lack of funds. In conclusion, it is concluded that for the introduction and effective use of the digital currency of central banks, it is necessary to have universal, open and user-oriented payment networks.

The author's opinion is based on the fact that the main advantage of blockchain technology is the lack of intermediaries and this technology has the potential to do something more revolutionary than to be content with popularity in the shadow parts of the Internet. Blockchain-based payment systems can bring the more than 1.7 billion people who are unbanked or underbanked (including 25% of U.S. households), into the formal economy. And in doing so, they can render obsolete the expensive, usurious payment and informal financial services those people use to make ends meet.

The relevance of the topic is also increasing in connection with the conditions of the pandemic. Currently, more than 70% of the world's central banks are exploring the benefits of central bank digital currencies — CBDCs) - electronic versions of their national fiat currencies. The advantages of this type of currency are considered to be: the ability to reduce dependence on commercial banks as the main interface for money management and increased optionality for consumers, many of whom are beyond the reach of physical bank branches or excluded from the financial system due to poor credit or lack of funds.

After a short introduction, the body of the article is conventionally divided into three parts. The first one talks about the high cost of being poor. Despite the huge breakthrough in mobile banking, that has improved financial accessibility, blockchain-based payment systems have even greater potential. As an example of the costly and frictionless process of sending money, statistics are given that costs average 7% worldwide in 2019 and this flow of money is so important that the United Nations has set a goal to reduce the cost of money transfers to 3% within the framework of the Sustainable Development Goals.

Next, the author directly suggests the principles according to which an open peer-to-peer payment infrastructure should look like and how it will work with CBDCs. As the first principle, the conditions for the safe conduct of the experiment with the currency are highlighted. There are two ways to achieve this safely: 1) promote regulatory certainty and vigorous promotion of competition

around the growing wave of stablecoin projects, and 2) create regulatory sandboxes where various experiments with CBDCs of the wholesale, retail, and hybrid variety can be tested, along with the public-private collaboration that can make last-mile use cases a reality. The second principle is the correct solution of requirements. This includes developing a framework that can harmonize the regulatory regime of digital assets around the world, including so-called global stable coins. In addition, the third principle says that solutions and technologies should be open source. Extending the perimeter of the formal economy in a way that balances compliance, risk management and responsible financial services innovation is an option, according to the author.

Finally, the author concludes his article with a thought about what kind of system the United States now needs in particular. As an example, the original draft of the US Care Act, which raised $ 2.2 trillion in economic aid and included direct payments to US citizens, is cited. It provided for the creation of a digital dollar and a citizen's digital wallet to facilitate direct payments in real time. The author highlights the reduction of poverty and the economic benefits that can be achieved. In the US, where an estimated 51 million Americans have lost their jobs due to Covid-19, more people are being forced to rely on payday loans; many of the most demanding families have been waiting for weeks to receive their physical checks. For rural communities and others, the concept of cashing a physical check, much like going to a physical transfer location to collect money, is not only cumbersome, but also expensive, and in the midst of an outbreak of infectious diseases, dangerous.

In conclusion, it is important to understand that digital currencies and blockchain-based payment systems are not in themselves solutions to endemic levels of poverty and financial exclusion, but must go hand in hand with strong governance principles.

Source: Disparte, Dante. “Could Digital Currencies Make Being Poor Less Costly?” Harvard Business Review Digital Articles, Aug. 2020, pp. 1–5.

Published by Harvard Business Review Digital Articles

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