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Queen Máxima of the Netherlands, who serves as the United Nations Secretary-General's Special Advocate for Inclusive Finance for Development, has joined the Bank for International Settlements (BIS) chief in endorsing the potential for central bank digital currencies (CBDCs).
CDBCs could offer an opportunity to overcome some barriers facing the unbanked, the Netherlands’ royal has said in a new op-ed with Agustin Carstens.
Queen Máxima has served as the UN’s financial inclusion advocate since being appointed by Ban Ki-Moon in 2009. She has also acted as the Honorary Patron of the G20 Global Partnership for Financial Inclusion (GPFI) since June 2011.
“Traditional services have potentially prohibitive costs and requirements such as transaction fees, minimum account balances, or formal proof of identification,” she said. “Additional obstacles include the low level of trust in digital payments and the lack of smartphones among some groups.”
Citing 2017 data from the World Bank, the op-ed says there are 1.7bn unbanked adults across the world.
“With no access to services from the formal financial sector, they are forced to resort to alternatives, often at significant cost or risk,” the op-ed says.
Such financial exclusion, according to Queen Máxima and Carstens, entrenches poverty, limits opportunity and prevents people from protecting themselves against hardship.
Meanwhile, financial inclusion starts but does not end with the ability to make and receive payments, the pair point out.
“People need a fast, secure, and cheap way to transfer money. To date, central banks have largely met this need by providing the most inclusive form of money we currently have, cash.”
However, using cash exclusively leaves the unbanked outside the formal financial system and without the data and transaction trail needed to readily access other financial services, the op-ed indicates, pointing out that this can make it much more difficult for small businesses to build savings and gain access to credit.
Although CBDCs are not the only way to overcome these barriers, they could be part of the inclusion toolkit, the op-ed says, pointing out that central banks are already coordinating further improvements to retail payments by adopting fast payment systems, and touting that CBDCs could represent a natural extension of this continuum.
“Both fast payment systems and CBDCs can spur competing providers to offer new services, lower costs, and, ultimately, broaden access,” the op-ed says.
“A further benefit of CBDCs is that, by their very nature, they will incorporate the unique advantages of central-bank money such as safety, finality, liquidity, and integrity.”
Promoting financial inclusion has been a significant objective for many governments and central banks in their investigative work on issuing a CBDC.
A recent paper published by the BIS that looks at the motivations for issuing a CBDC in emerging markets found that financial inclusion was a “top consideration” for countries including Mexico, Peru and South Africa.
“CBDCs could bypass many of the vested commercial interests that have cropped up around payment systems and contributed to inefficiencies and costs for users,” the op-ed says, while also talking up the potential of lower costs considering the removal of the credit and liquidity risks inherent in other forms of digital money.
The regal intervention also suggested that there are benefits for social policies with a CBDC.
For example, governments could use CBDCs to channel financial support to low-income households, which would deepen longer-term inclusion and act as another gateway to other financial services.
“To realise these benefits, any CBDC rollout must be accompanied by policy reforms and safeguards to address potential difficulties and risks, such as low levels of financial and digital literacy, and operational challenges, including cybersecurity,” the op-ed summarises.
