Digital banking 5 A heady bru
Countries that have fully launched a digital currency.
Atlantic Council
South Africa is one of the most financially heterogeneous spots on the continent. Among wealthy people, around 95% of transactions are done digitally – but head from the glitzy suburbs to the townships and everything changes. Four in five South Africans have bank accounts, but cash is often king among the poor. Not that it’s necessarily easy for the 55% of South Africans who live below the poverty line to access physical money. In some remote areas, the nearest ATM might be 25 miles away. Nor are these problems theoretical. In KwaZulu-Natal and Gauteng, after all, criminal attacks on banks have made it hard for many rural South Africans to access the money they need to survive. No less serious is the question of cross- border remittances, with migrant workers from Angola or Botswana regularly losing 10% of their pay cheque before they get home.
“We already have a perfectly viable, effective and relatively cheap means of making payment: and that’s physical notes and coins.”
Simon Youel
It’s into these muddy economic waters that Cassim and his team are dipping their toes. And though it’s early days, CBDCs could well be the future across Africa’s most southern republic. One of the most striking projects here is known as Project Dunbar. Led by the Bank of International Settlements and supported by the SARB, together with partners in Australia, Malaysia and Singapore, it looks to remake global payments. Put simply, the platform would cut commercial institutions out of the equation, instead passing payments directly between central banks. Naturally, this could cut costs dramatically. Nor is Project Dunbar alone. Another South African scheme could eventually introduce a CBDC at the national level, with digital wallets replacing ATMs. Cassim stresses that he doesn’t speak for Project Dunbar directly and that his country’s flirtations with CBDCs are just that. All the same, listen to him discuss these innovations and he’s clearly enthused. “If ever there’s a case for a CBDC, it’s on the cross- border side,” he emphasises, adding that a “best- case” domestic scenario could involve fully-fledged digital money too. Other experts have been even more explicit. Writing in June 2021, for instance, the economist Josh Ryan-Collins imagined a world where the Bank of England gave out loans or developed accounts where citizens could keep their savings. “A tech company might offer a system allowing you to access your CBDC,” Youel speculates. “We’re calling for a public option, like the Post Office, where many people access banking services already.”
26
Clearly, these developments could improve life for Brits and South Africans alike. All the same, there are obvious downsides to CBDCs. Beyond broad worries around privacy – do people really want the state controlling their bank account? – that’s especially true when it comes to commercial lenders. Put it like this: if the Bank of England did provide personal loans, and the UK public embraced them, traditional banks could be left high and dry. If central banks started offering payment services, credit card companies might suffer too. And though banks themselves are reluctant to comment on the approaching storm, Youel suggests they’re certainly worried. Central banks, he says, are “definitely” going to be lobbied by commercial operations to put the brakes on CBDCs. There are hints this is happening already: one prominent strategist at JP Morgan recently warned that banks CBDCs could cost banks 30% of their funding.
Bank you very much
How should commercial banks respond to these threats? Youel is blunt. For him, competition is a great way of forcing them to sharpen their services. From better interest rates to cheaper transactions, he suggests there’s plenty to do. To be fair, there are signs that some institutions are battling to improve life for their beleaguered customers. JP Morgan, for its part, recently launched a new Chase account in the UK. Among other things, the service offers cashback on everyday spending and free-card use abroad. Nationwide, for its part, enters new saving account holders into a lottery, giving them the chance to win £100. At the same time, plenty of banks are working to fix other aspects of their operations. Strikingly, many have cut fees for international payments. HSBC now demands £5, while Credit Suisse charges CHF 5 – about £3.95. On a more fundamental level, some institutions are pushing their way into the CBDC market. JP Morgan is again prominent here, working with Bahrain’s central bank to develop a form of cross- border CBDC. In a similar vein, there are clues that CBDCs will be developed in a way that keeps regular banks secure. That may include limiting the amount of money people can save in a state-run account or else forcing central banks to keep interest rates low. Whatever the future holds, at any rate, we should never forget where the banking sector actually began. Though he’s basically enthusiastic about CBDCs, Youel warns that traditional coins and notes are still deeply valuable. “We already have a perfectly viable, effective and relatively cheap means of making payment: and that’s physical notes and coins.” From their anonymity to their reliability, that’s a fair point. Let’s just hope everyone – from the Old Lady of Threadneedle Street down – remembers it well. ●
Future Banking /
www.nsbanking.com
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61
