“This is not the time to turn back on central bank digital currencies,” Kirstalina Georgieva said. At the same time, Singapore’s central bank is advising the public to “carry some cash” as a contingency for further outages.
As regular readers know, the IMF has been playing a significant behind-the-scenes role advising governments and central banks on how to prepare for/usher in a cashless future. The Fund is deeply involved in the development of central bank digital currencies (CBDCs), mainly by providing technical assistance to its members, much as its sister Bretton Woods institution, the World Bank, is deeply involved in the roll out across the Global South of digital identity systems, which are essentially a prerequisite for CBDCs.
At an event in Morocco in June, the IMF’s Managing Director Kirstalina Georgieva said the Fund is working on developing a global CBDC platform, to ensure interoperability between the different CBDC systems under development across dozens of jurisdictions:
If we are to be successful, CBDCs cannot be fragmented national propositions. To have transactions more efficient and fairer, we need systems that connect countries. In other words, we need interoperability. For this reason, at the IMF we are working hard on the concept of a global CBDC platform to trade and to manage risks.
The irony is that this is all happening at the same time that the global geopolitical order is rapidly fragmenting between US or NATO-aligned countries and much of the rest of the world, as we have already seen play out over the war in Ukraine and the US-EU’s ratcheting sanctions on Russia. That said, most of the BRICS economies, including Russia and China, are further along the path to developing and issuing a CBDC than their counterparts in the so-called collective West.
This Wednesday, Georgieva was in Singapore to deliver the keynote speech at the Singapore Fintech Festival. During that speech, she announced the launch of a CBDC Handbook as well as a soon-to-be-published joint plan with the World Bank to provide CBDC capacity development for national central banks and governments. She also warned public sector institutions that now “is not the time to turn back” on CBDCs. This, I believe, betrays a hint of anxiety about the current state of play with CBDCs, perhaps as a result of recent developments in the US and Nigeria (more on that shortly).
The future of digital cash, she said, depends on how many countries adopt the idea and how obsolete cash becomes as a result. This, she added, will take time, presumably (though she didn’t actually say this) because cash remains a popular means of payment in many countries around the world, including (to name a few) Germany, Switzerland, Austria, Japan, Mexico, Colombia, Slovakia and Spain, and is even staging a comeback in others (e.g. UK and Spain).
This will make cash difficult to fully displace, especially given the instinctive public distrust of central bank digital money. The few public surveys that have been conducted on CBDCs, including in the UK, the US and Spain, suggest the small minority of people who are actually aware of them harbour serious doubts and reservations.
As they well should: CBDCs, as envisaged, will replace money with something fundamentally different — a tokenised, programmable system of money over which government and central banks will have total, centralised control. In the words of the German economist Richard Werner, the CBDC revolution will turn your money into “conditional, potential money,” allowing the “disabling, freezing, cancellation or simple reduction” of your funds. This will all be happening at the same time as digital censorship laws are proliferating throughout the world.
Tellingly, Georgieva did not mention even the notion of CBDCs coexisting with cash, as some central bankers have done in recent months. The ECB, for example, recently announced that it is pushing for an explicit ban on unilateral cash exclusions by businesses in the Euro Area. This stands in stark contrast to the position of the European Commission, which is calling for governments to merely monitor cash exclusion and which, as the German financial journalist Norbert Häring has documented, wants to give decisive preference to the digital version of central bank money through its parallel guidelines on the digital euro and euro cash.
In the US, some central bankers, including Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, and Michelle Bowman, a Federal Reserve governor, have even questioned the need for a CBDC altogether. Fed supervision chief Randal Quarles went further, describing CBDCs as an embarrassing fad, comparable to the parachute pants made famous in the 1980s by rapper MC Hammer. US lawmakers, including the House of Representatives’ Majority Whip Tom Emmer, are also trying to preemptively prevent the Federal Reserve from issuing a CBDC that would enable the authorities to monitor and track the financial activities of Americans.
This may partly explain Georgieva’s exhortation to public institutions not to turn their back on CBDCs.
A “Digital Finance Voyage”
Titled “The Digital Finance Voyage: A Case for Public Sector Involvement,” Georgieva’s speech was peppered, bizarrely, with nautical metaphors, with the apparent aim of portraying the creators and developers of CBDCs as intrepid explorers and adventurers charting new frontiers in finance:
I come in the footsteps of my predecessor, Christine Lagarde, who five years ago gave a speech here encouraging policymakers to follow the “winds of change,” and embark on a digital money voyage by exploring the use of central bank digital currencies, or CBDCs, and fintech.
Five years on, I’m here to provide an update on that voyage. I have four main messages. First, countries did set sail. Many are investigating CBDCs and are developing regulation to guide digital money developments. Second, we have not yet reached land. There is so much more space for innovation and so much uncertainty over use-cases. Third, this is not the time to turn back. The public sector should keep preparing to deploy CBDCs and related payment platforms in the future. Fourth, these platforms should be designed from the start to facilitate cross-border payments, including with CBDCs.
We’ve left port and are now on the high seas. This calls for courage and determination. We can learn from you: entrepreneurs, business leaders, and investors. You are sailors in the world of fintech. Every day you brave the open waters. Waves and winds are your inspiration.
Georgieva also said this on the potential use cases of CBDCs:
“CBDCs can replace cash which is costly to distribute in island economies. They can offer resilience in more advanced economies. And they can improve financial inclusion where few hold bank accounts.”
And this, on the need for governments to embrace an entrepreneurial approach to CBDCs:
“Country authorities wishing to introduce CBDCs may need to think a little more like entrepreneurs. Communication strategies, and incentives for distribution, integration, and adoption, are as important as design considerations.”
And lastly this, on AI’s possible role in enhancing CBDCs:
“AI, for instance, could amplify some of the benefits of CBDCs. It could improve financial inclusion by providing rapid, accurate credit scoring based on various data. It could provide personalized support to people with low financial literacy. To be sure, we need to protect personal privacy and data security, and avoid embedded biases so we don’t perpetuate inequality but aim to reduce it.”
What a bizarre thought: the IMF trying not to perpetuate inequality!
In a talk last year, the IMF’s Deputy Managing Director (and former Deputy Governor of the People’s Bank of China) Bo Li explained in more detail how AI-empowered programmable CBDCs could help improve financial inclusion and outcomes (while, of course, granting central banks and governments unprecedented surveillance powers and control over the people’s finances and spending):
Today: “CBDC can allow gov agencies & private sector players to program/allow targeted policy functions (i.e. consumption coupons) By programming #CBDC the money can be precisely targeted for what kind of people can own & what kind of use this money can be utilized” Bo Li, #IMF pic.twitter.com/kcROTxXZau
— Tim Hinchliffe (@TimHinchliffe) October 14, 2022
Repeated and Prolonged Delays to Payment Services
Georgieva’s latest speech on CBDCs comes at an interesting moment in time, as well as from an interesting place. “There is,” she said, “no better place to look into this future than Singapore — a place where fintech flourishes and where this festival brings the unlimited energy of fintech enthusiasts.” Yet Singapore just suffered a hugely disruptive bank outage — one of many this year — after the online (and some offline) services of two of its largest lenders, DBS and Citi’s Singaporean subsidiary, went down for over 12 hours due to an “issue” at a data centre used by both banks..
The result outage caused issues with the usage of ATMs, credit cards, PayNow and investments made via the Citi Mobile App or Citibank Online, leaving many people “unable to shop, buy food, pay for public transport, or carry out many of their usual weekend activities,” as reported Channel News Asia. In total, 2.5 million payment and ATM transactions were prevented from taking place while around 810,000 attempts to access DBS and Citibank’s digital banking platforms failed.
South East Asia’s largest bank by assets, DBS has suffered repeated and prolonged disruptions to its banking services this year. In November 2021, it suffered its largest and longest outage in over a decade, lasting two full days. As we reported at the time, the outage was a serious embarrassment for a bank that prides itself on its digital smarts. In 2020, DBS’ Chief Financial Officer Chng Sok Hui boasted in an interview with Mckinsey & Company that DBS had morphed from being a bank to a technology company.” But its technology keeps failing.
It is also an embarrassment for the city of Singapore, which has repeatedly topped the global Smart City Index but whose banking system continues to suffer regular payment outages. In the wake of the latest outage, Singapore’s central bank, the Monetary Authority of Singapore (MAS), even urged the public to “carry some cash” as a contingency for further outages. As an article in Business Times grudgingly conceded, “seven years after Singapore launched a Payments Roadmap with the ambition to move away from paper-based instruments, the country continues to struggle to wean itself off physical currency.”
The same goes for Nigeria, which has the dubious distinction of being the first largish economy in the world to fully launch a CBDC, the so-called eNaira. And it has been an unmitigated flop.
The central bank’s new governor, Olayemi Cardosi, is even talking about dropping the eNaira altogether, according to the Nigerian newspaper Leadership News. Cardosi’s predecessor, Godwin Emefiele, who launched the eNaira as well as the central bank’s disastrous demonetisation program earlier this year, leading to a world of pain for Nigerian citizens and businesses, was just released on bail after spending five months in detention. He faces six charges of fraud, down from 20 a few months ago.
The IMF may have provided technical support for the development and roll out of Nigeria’s eNaira platform, but that was not enough to make it a success. When it became clear that almost all Nigerians were completely disinterested in having an eNaira wallet, the government and central bank responded by simply removing more than half of the physical cash in circulation. Under Emefiele’s control and the IMF’s guidance, the Central Bank of Nigeria had a clear goal (among others): to push the country into a 100% cashless economy. Like the eNaira, it failed.
Instead of adopting the CBDC, Nigerians took to the streets to demand the restoration of the paper money, which is eventually what happened, albeit after weeks of needless economic pain and turmoil. One of the lingering effects of the CBN’s disastrous demonetisation program is that Nigerians have even less trust in the financial system.
As mentioned earlier, the few opinions polls that have been conducted into CBDCs suggest that the general public are inherently suspicious of this new kind of money. When the U.S. Federal Reserve recently solicited comments on a potential digital dollar, more than two‐thirds of the respondents expressed concerns about the risks to financial privacy, financial freedom and the stability of the banking system.
Put simply, CBDCs have a major marketing problem. They may offer huge benefits for central banks, governments, fintech firms and well-positioned commercial banks and payment processors, but for the general public the potential benefits (convenience and faster payment processing) are massively outweighed by the potential risks (complete loss of financial privacy and anonymity, programmed restrictions on spending, unlimited negative interest rates, automatic bail-ins, blocked accounts, security risks…).
This is why CBDCs — like the digital identity systems that must accompany them — are being rushed through as quickly and quietly as possible, with no public consultation let alone debate.