CBDCs In 2022: Financial Inclusion Or Another Geopolitical Tussle?

At a Huobi Research Institute-organized webinar, industry experts weighed in on why CBDCs will take off this year and what it means for both traditional and emerging financial institutions.

CBDCs In 2022: Financial Inclusion Or Another Geopolitical Tussle?

Central Bank Digital Currency (CBDC)s are purportedly the next step in the quest toward global financial inclusion, as they tout the concept of lowered costs for both physical currency and cross-border money transactions.

Inevitably, though, the geopolitical angle comes into play. With China’s digital yuan set to launch, whispers have inevitably surfaced about how the Chinese Yuan is looking to compete with the USD’s dominance on a global level.

Geopolitical concerns aside, panellists are certain that 2022 will be a banner year for CBDCs.

“China was first to experiment with a retail CBDC, and the country’s Digital Currency Electronic Payment (DCEP) system has already garnered 140 million accounts and 1.5 million merchant signups,” shared Flora Li, Director of the Huobi Research Institute and author of the institute’s annual report titled Global Crypto Industry Overview and Trends: 2021–2022.“In addition, international organizations such as the G7 group and central banks have maintained positive attitudes toward CBDC and its development. 

“China is now promoting a CBDC payment bridge among several central banks and this will be the future.”

A report from the Bank of International Settlements (BIS) has noted that 2022 will likely see many central banks rolling out CBDC, with more than 80% already doing so. Countries such as Japan, Turkey and Thailand have announced their intentions to launch a CBDC in the near future.

“We can expect more ‘live’ rollouts this year by several countries,” said the Co-chairman of the Singapore Blockchain Association Chia Hock Lai.

And while some cynics might think that stablecoins will be a direct competitor to CBDCs, Chia envisions a world where both co-exist. “A large country like the US is some 3 to 4 years behind in developing CBDC, so having stablecoins pegged to the USD makes sense for them.”

A multi-faceted CBDC collaboration across countries, with a shared utility platform, facilitating cross-country transactions, is ideal and would truly enable the move toward global financial inclusion, says Chia.

CBDCs are also expected to have a positive impact on the blockchain and drive the move toward tokens backed by hard assets such as real estate. According to Chia, the uptake of such tokens are currently experiencing weak uptake due to a lack of secondary liquidity. CBDCs will address this problem as it enables a full end-to-end lifecycle for asset-backed tokens, from purchasing to settlement.

CBDCs are also expected to positively impact the private sector, particularly private payment companies.

“Both the private and public sectors will likely orchestrate a push into CBDC, and payment companies will play an instrumental role in bringing CBDCs to the masses,” shares Senior Financial Analyst and Insights Lead at EmergentX Esme Pau. “The two will co-exist.”