This Week in CBDCs ??

???? The coalition of BRICS nations, buoyed by a shared goal of financial autonomy, has announced plans to develop an independent, blockchain-based payment system to foster seamless, cost-effective global transactions ??. The proposed architecture also contemplates the inclusion of digital currencies as a shift away from the US dollar dependency ??.

?? A key highlight was the emphasis on creating a system that's not just advanced technologically, but also user-centric - accommodating governments, businesses, and common people alike ??. Kremlin aide Yury Ushakov outlined the objective for this system to be free of political influence and framed as a crucial stride towards enhancing BRICS's footprint on the global financial and monetary ecosystems ??.

??The 2023 Johannesburg Declaration brought these aspirations into focus ??. Acknowledging the manifold benefits of expedient, cost-effective, safe, and inclusive payment systems, the declaration underscores the commitment of BRICS nations to deliver improved cross-border transactions, underpinned by the G20 Roadmap on Cross-border Payments ???.

?? The vision extends to promoting the use of local currencies in international trade ?? and financial transactions among BRICS nations and their trading partners. This approach leverages the shared experiences and practices within the BRICS community, fostering a harmonious alliance through collective growth ????.

???? With aspirations to reduce the dependency on the US dollar, BRICS nations see the Contingent Reserve Arrangement development as an opportunity to operationalize their currencies. As a collaborative bloc of Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, and the United Arab Emirates, BRICS represents a collective endeavor towards reshaping the contours of their financial future ????.

?????? Amid the global regulatory landscape's ongoing evolution, Nigeria’s Central Bank shakes hands with Gluwa (a banking industry API tool and blockchain developer), aiming for a revitalized boost in eNaira's adoption and financial inclusivity. This strategic partnership emerges as a beacon of innovation, aimed squarely at towering hurdles of financial inclusion and the broader acceptance of CBDCs.??

???? Gluwa's intervention comes with a promise of constructing digital bridges over the existing credit chasms. Through an intuitive integration with eNaira, Gluwa sets its sights on providing unbanked Nigerians with digital credit profiles. This approach could democratize access to credit, assigning digital ratings and scores that pave the way for a more inclusive financial landscape. Moreover, Gluwa’s tech is expected to smooth out the creases in credit management, settlement, and assessment for local fintech lenders – a nod to the potential of blockchain in revolutionizing traditional finance frameworks. ????

???? Despite the eNaira’s launch in October 2021, uptake has been lukewarm, with IMF data spotlighting that a meagre 1% of Nigerians with bank accounts have embraced eNaira wallets, and an alarming 98.5% of those remain dormant. Gluwa's presence isn’t new to Nigeria’s soil, having previously collaborated with Lagos State in 2022 to mint tokens out of agricultural assets. This prior engagement demonstrates not just the potential, but the practical application of its real-world assets technology. ????

???? Tae Oh, the visionary behind Gluwa, casts this partnership as a vital step toward enhancing eNaira adoption. Leveraging blockchain to spearhead financial service innovations, Gluwa’s ambitions lie not just within Nigeria, but across the continent, advocating for a future where financial solutions are both revolutionary and accessible. With Oh also at the helm of the Creditcoin Network, his commitment to advancing financial solutions is palpable and poised to leave an indelible mark on Nigeria’s financial ecosystem. ?????

?????? Despite Japan's active engagement in CBDCs research and trials, awareness among its residents still remains notably low. According to Kazuo Ueda, the Governor of the Bank of Japan (BoJ), less than 20% of the population are familiar with the term CBDC, while a further 20% have merely heard of the terminology but lack an understanding of its concept ????.

????? In his address, the BoJ governor underscored the pivotal role CBDCs can potentially play in facilitating larger and faster payments. He applauded CBDCs' simplicity, requiring only digital wallets for storage in contrast to physical storage needs for cash notes Ueda acknowledges that the nature of money is steadily undergoing changes with the advent of digital currencies like CBDCs ????.

???? Last July, Japan initiated discussions with around 60 companies for a pilot program to develop a digital yen, involving several prominent banks and tech corporations such as Sony and Toyota's Lawson. This effort represents Japan's proactiveness in exploring the technical feasibility and potential use-cases of a digital yen. If all goes well, Japan could witness an extensive rollout of its digital yen by 2026, marking a significant milestone in its CBDC journey ?????.

?? The Bank for International Settlements (BIS) ?? has released a comprehensive study, "The Economic Implications of Services in the Metaverse," ?? diving deep into the transformative potential of the metaverse on the digital economy ??, covering areas such as gaming, e-commerce, education, healthcare, and payment systems ??. Despite the recent dip in public interest and investment ??, the metaverse holds promising applications beyond its current speculative and entertainment value ?????. The study meticulously analyzes the economic impact, challenges, and opportunities presented by the metaverse, shedding light on its ability to blur the lines between traditional sectors ??, enhance cross-border integration, and introduce novel demands on payment services ??.

?? Redefining Payments

The evolution of payment systems within the metaverse is a critical area of focus ??. Traditional payment methods, cryptocurrencies, and potentially central bank digital currencies (CBDCs) ?? are vying to facilitate transactions in these virtual environments ????. The paper highlights the importance of developing efficient, secure, and interoperable payment solutions to support the burgeoning virtual economy ??. A survey conducted by PayPal, involving 10,000 metaverse users, revealed a preference for a variety of payment methods, including PayPal, debit cards, credit cards, direct bank transfers, and prepaid cards. These methods primarily serve to purchase metaverse tokens or digital representations of value across platforms like Roblox, Minecraft, and Second Life, which can then be exchanged for tokenized goods and services. ??

?? The paper underscores the dual nature of metaverse tokens as both speculative assets and potential means of payment, highlighting the volatility and speculative behavior associated with these tokens compared to traditional fiat currencies. This raises questions about the practicality of using these tokens as stable mediums of exchange. ??

As the metaverse continues to evolve, it's crucial to explore diverse payment systems beyond the usual online banking ?? and cryptocurrencies ??. According to the report, users expect payments in the metaverse to be fast, secure, and capable of seamless cross-border transactions, given the limitless nature of these virtual environments ??.

?? Key to users' comfort is the stability of the virtual currency against real-world financial aspects—like income, expenses, and assets??. With this in mind, the BIS report examines potential future payment mechanisms in the metaverse:

• Tokenised Deposits: These can be thought of as digital versions ??? of commercial bank deposits, existing on a programmable platform. They allow for prompt, conditions-based transactions, such as transfers of virtual property ?????? or completion of specific tasks ??, making them an effective tool for virtual exchange.
• Central Bank Digital Currencies (CBDCs): These currencies, if designed to interoperate with metaverse ecosystems, can make transactions easier in virtual spaces and carry implications for broader financial policies and infrastructures ?????.

?? Moreover, CBDCs could enable cross-border transactions through multi-CBDC arrangements, fortifying the global economic connectivity of the metaverse ??.

As traditional cryptocurrencies and Non-Fungible Token (NFT) sales navigate through periods of instability ??, the focus on developing CBDCs shines as a beacon of potential stability in the virtual payment landscape ????. The BIS report offers interesting insights into this evolution, charting the landscape of economic interaction within the digitally expansive metaverse.

That’s a wrap on this edition of the CBDC Chronicles. Share your thoughts and drop them in the comments section below or send me a direct message.

?? Like this post: Your likes help me understand what content resonates with you.

?? Comment below: Your insights broaden the conversation and I appreciate your individual perspectives and encourage a healthy professional debate.

?? Reshare: If you find the content valuable, feel free to spread the knowledge amongst your connections.

See you in the next edition, until then, stay engaged and keep exploring! ????