The Singapore Fintech Festival (SFF) is back in full swing, running from November 15 to November 17 at the Singapore Expo.
To inaugurate this year’s festival, Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), delivered a keynote address this morning (November 15) focusing on the advancements in the international digital finance sector.
Georgieva began by expressing her commitment to the ongoing progress in digital finance, referencing a speech made five years ago by her predecessor, Christine Lagarde, who is now the president of the European Central Bank. Lagarde had encouraged policymakers to explore the possibilities of central bank digital currencies (CBDCs) and fintech.
Highlighting the developments over the years, Georgieva shared that various organisations, including the IMF, have delved into the use of CBDCs and are working on regulations aligned with the evolution of digital finance.
“We have set sail and are now navigating the high seas,” she added. Despite the strides made in recent years, Georgieva emphasised that the digital money sector still holds immense untapped potential, urging businesses and policymakers to accelerate their efforts.
The benefits of CBDCs
While innovative technologies like ChatGPT have achieved global popularity, Central Bank Digital Currencies (CBDCs) are still working their way into widespread adoption. Currently, about 60 per cent of countries are exploring CBDCs in some capacity.
Georgieva emphasised that CBDCs hold the potential to enhance resilience in more advanced economies and promote financial inclusion for the underbanked and unbanked. While this may seem challenging for some nations, she urged them to continue planning for the eventual deployment of CBDCs.
Highlighting the pivotal role of CBDCs in the digital finance payment landscape, Georgieva noted that 11 countries have already adopted CBDCs, and the trend towards digital financial services is on the rise.
In the realm of digital finance, cryptocurrencies play a significant role. Georgieva cited the example of Libra, initially created by Meta Platforms, as a cautionary tale.
The cryptocurrency faced political opposition, particularly from President Biden, raising concerns about potential privacy infringements. Despite its rebranding as Diem in 2020, Libra’s operations winded down in 2022 due to key leadership departures, ultimately leading to the sale of Meta’s fintech unit to the crypto-focused bank Slivergate.
Addressing the potential proliferation of private forms of money and its consequences, Georgieva asserted that CBDCs offer a safer and more cost-effective alternative. She described them as a “bridge between private monies” and a “yardstick to measure their value,” comparable to how cash is withdrawn from ATMs.
Georgieva also underscored the importance of government policy decisions and private sector reactions in determining the success of CBDCs. She urged policymakers to adopt an entrepreneurial mindset, emphasising that communication strategies, incentives for distribution, integration, and adoption are as crucial as design considerations. Additionally, Georgieva highlighted the need for increased investments to ensure the success of CBDCs.
Will you, fintech leaders and developers, spend the resources that are necessary to onboard merchants so they accept CBDCs? Will you make it easy for CBDCs to be integrated into financial services and messaging apps so people can pay each other from any environment? Fair enough, it will depend on the returns of your investments.– Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF)
The role of new technology with CBDCs
Aligned with the SFF’s theme, “AI for good. AI for good?”, Georgieva delved into the potential role of Artificial Intelligence (AI) in conjunction with the adoption of CBDCs. She highlighted AI’s capacity to enhance financial inclusion through rapid and accurate credit scoring, along with providing personalised support for individuals with limited financial literacy.
However, Georgieva emphasised the necessity for caution when deploying AI for these objectives. She stressed the importance of safeguarding personal privacy and data security while actively working to mitigate unseen biases that could contribute to inequality.
The tokenisation of financial assets, such as bonds on blockchains, presents additional opportunities for the wholesale utilisation of CBDCs in acquiring these assets. Georgieva also unveiled the IMF’s CBDC handbook, available for viewing starting today.
The Handbook is intended to collect and share knowledge on CBDCs for policymakers around the world to help them sail ahead. And it is a never-ending endeavour, we will continue to build on this experience as it appears itself.– Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF)
Creating cross-border payments with CBDCs
Discussing cross-border payments, Georgieva highlighted their current drawbacks as “expensive, slow, and limited”, showing a pressing need to enhance efficiency aligning with CBDC deployment.
According to Georgieva, efficient cross-border payments enable swift capital transfers, opening doors for small businesses and households to access funds globally. Despite reduced remittance costs, more efforts are essential for meeting Sustainable Development Goal targets.
“We must ensure that countries do not get stuck on the wrong side of the digital divide,” said Georgieva. As a short-term plan and following the G20 Roadmap, the IMF will collaborate with the World Bank to publish a common plant to provide capacity development for countries looking to enhance cross-border payments.
Looking ahead, Georgieva proposed the development of new cross-border platforms in collaboration with banks and fintech companies. These platforms could serve as next-generation virtual town squares, facilitating the exchange of CBDCs and interfacing with traditional money while managing payment risks.
“Think of these as next-generation virtual town squares where central banks, commercial banks, and potentially even households and firms, can gather to exchange CBDCs in wholesale or retail form. Such platforms can even be built to interface with traditional forms of money and manage risks from payments,” explained Georgieva.
Beyond the private sector, the public sector explores opportunities in cross-border payments. Project Guardian, initiated by the Monetary Authority of Singapore in October 2022, aims to assess asset tokenisation and decentralised finance (DeFi) applications, prioritising risk mitigation.
In a third announcement, Georgieva revealed the IMF’s participation in Project Guardian as observers, advising on implications for the international monetary system.
Further direction needed to move forward
While players in the public and private sectors are actively involved in advancing CBDC deployment and enhancing cross-border payments, there is room for increased efforts from the public sector. Georgieva suggested that these organisations can provide additional guidance, acting as catalysts to ensure safety, efficiency, and prevent fragmentation.
“What we need in this voyage is a compass,” said Georgieva, adding the need to highlight the desirable properties of cross-border platforms from a policy perspective. She stated that platforms must be open to allow countries to manage capital flows and retain control over their money supply.
Regulatory guidelines will also be necessary to prevent financial crimes such as money laundering and terrorist financing.
Tying back to the integration of AI in fintech, solutions such as RegTech could also be used to reduce compliance costs, with Georgieva likening it to using priority lanes in airports, where passengers can skip over long queues at security.
Moving forward, Georgeiva calls for policymakers and businesses to remain open-minded about CBDCs and cross-border platforms, calling for close collaborations across international institutions, central banks and ministries on finance.
She also expressed IMF’s ambition to play their role in working towards strengthening the integration and stability of the international monetary system.
We will be in the high seas for some time. But the potential payoff is clear: a more inclusive international financial system that meets our future needs. So let us not disembark at the first island. Nor turn back. There is value in the voyage itself.– Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF)
Featured Image Credit: Singapore FinTech Festival