The government should proactively explore how the adoption of a digital currency can add value to the economy while maintaining coherence with Bangladesh’s social and political climate, experts said yesterday.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said the widespread adoption of central bank digital currencies (CBDCs) represents a significant evolution in the monetary system.
CBDCs are a form of digital currency that is regulated by a country’s central bank. They are similar to cryptocurrencies, but their value is set by the central bank.
“We need to show more excitement for a CBDC. It doesn’t mean that we will do it now. We should identify its limitations and advantages so that we can do it better, even if we are late in the implementation compared to others countries.” he said.
“We have taken a stand on cryptocurrencies by banning them… but for the CBDC, we need to take decisions more proactively,” he added.
“I am not sympathetic to cryptocurrencies as they are not backed by central banks and have vulnerability and volatility associated with them,” he said.
He said that Bangladesh is in a state of inertia regarding the CBDC, adding that the country should strive to digitize transactions no matter what, even if it does not adopt a digital currency.
He was speaking yesterday at a roundtable titled “Future of Money: Central Bank’s Digital Currency”, jointly organized by the PRI and The Daily Star at the Azimur Rahman Conference Hall at The Daily Star Centre.
“Our digital infrastructure needs to develop more, and our digital outreach and inclusiveness need to broaden so that the next generation can conduct digital transactions,” he added.
He said the launch of the CBDCs is being seen across the world.
“We need to look at what other central banks are doing. We need to examine why India is moving fast for a CBDC while China is reluctant and the US is not proactive,” he said.
“There are some silent reasons and if we could understand and analyze these reasons, we can devise our strategy,” he said.
Mohammad Abdur Razzaque, research director at the PRI, gave the keynote address at the roundtable.
He said the potential benefits of the CBDCs include improved transaction efficiency, reduced costs of printing money, improved security against counterfeiting, and the promotion of a cashless economy to combat financial crimes.
The former finance minister, Mustafa Kamal, made a comment about conducting a feasibility study on the adoption of a CBDC. However, there are no significant updates regarding this issue, Razzaque said.
He said people mistakenly believe that the CBDCs are the same as existing cryptocurrencies. However, unlike cryptocurrencies, the CBDCs are backed by the country’s financial system and are considered legal tender, he said.
Unlike cryptocurrencies, the acceptance of CBDCs for transactions is mandatory, similar to traditional fiat money, which is a type of currency that is not backed by a precious metal, such as gold or silver.
The implementation of the CBDCs will require a transaction record system, accessible service interface, reliable ledger and secure storage solutions.
In a global survey conducted in 2020, 86 percent of central banks were actively exploring CBDCs, a significant increase from the 65 percent reported in 2017.
In another study, the Bank for International Settlements said 15 retail and 9 wholesale CBDCs could be operational by 2030.
Jamaica, Zimbabwe, Nigeria and the Bahamas have officially launched CBDCs while numerous others are researching, developing or launching similar programs.
However, there are concerns about Bangladesh’s digital readiness that need to be addressed for successful implementation, Razzaque said.
“Bangladesh has marginally improved in global digital rankings, specific areas such as network readiness, cyber security and online services. However, digital literacy is still low, with more than half of households unaware of using the internet and a significant proportion lack basic digital skills.”
There are significant challenges in terms of cyber security, as evidenced by past incidents such as the Bangladesh Reserve Bank heist.
Compromised databases and cases of hacks raise privacy and security concerns regarding the CBDCs, while widespread internet use increases concerns about personal and financial data security.
The possible characteristics for the CBDC design can be categorized into three main groups: instrument, system and institutional characteristics. It is crucial to stick to the desired features to achieve the expected outcomes, Razzaque suggested.
He warned that any challenges that impede citizens’ accessibility to the CBDC could exacerbate the digital divide.
He recommended setting realistic goals, keeping in mind the existing cash-dependent economy, for improved benefits. “It is crucial to recognize the additional benefits of a CBDC beyond simply promoting a cashless economy,” said Razzaque.
Policymakers should also consider other critical functions of a CBDC, such as improving financial efficiency and transparency, facilitating and implementing a more effective monetary policy, providing social protection grants more efficiently and promoting the development of a digital financial ecosystem.
Formulating and updating digital infrastructure and institutional regulatory frameworks and improving mass digital literacy, fintech knowledge, addressing the digital divide, and data security are also important.
Jamaluddin Ahmed, board member of bKash, said Bangladesh must first switch from the current analog bureaucratic system to a digital one to implement the CBDC.
“We are already behind as Bangladesh is not one of the 108 countries that are in the pilot phase for CBDC implementation,” he said.
“We have to make gradual progress. It can’t happen overnight.”
Ashikur Rahman, a senior economist at the PRI, suggested conducting a meta-analysis on the lessons learned from global pilot studies.
“We can take lessons from China and India and start a pilot program with a new design in Bangladesh,” he said.
“We are still doing homework,” he added.
Although the country’s mobile financial services are doing well, a significant portion of transactions are still done in cash, said Mohammad Aminul Haque, additional managing director of Nagad.
“Although it will be difficult to eliminate cash, the country should optimize digital transactions to their full potential,” he added, pointing to the lack of a skilled workforce.
Arif Rahman, manager of MicroSave Consulting, said the focus should be on increasing technology adoption among citizens by providing more user-friendly technology.
Tanjim Ferdous, in charge of NGOs and foreign missions at The Daily Star, moderated the event.
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