The Digital Finance Voyage: A Case for Public Sector Involvement

IMF News, November 15, 2023

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Canonical URL: The Digital Finance Voyage: A Case for Public Sector Involvement

Keynote address, Singapore Fintech Festival, November 15, 2023.
Speaker emphasizes Singapore as a fintech hub and frames the talk as a stock-taking of progress since a speech five years earlier that encouraged exploration of central bank digital currencies (CBDCs) and fintech.
Four main messages:
- Countries did set sail: many are investigating CBDCs and developing regulation to guide digital money developments.
- We have not yet reached land: considerable space for innovation and uncertainty over use-cases remains.
- This is not the time to turn back: the public sector should keep preparing to deploy CBDCs and related payment platforms in the future.
- Platforms should be designed from the start to facilitate cross-border payments, including with CBDCs.

AI adoption example: average number of months before various applications reached 100 million users is 3 years; ChatGPT took 2 months.
Emphasis that technological evolution (including AI and tokenization) will shape CBDC benefits and use-cases.

Status:
- "About 60 percent of countries are exploring [CBDCs] in some form today."
Potential benefits and use-cases:
- Replace cash in costly-to-distribute environments such as island economies.
- Offer resilience in more advanced economies.
- Improve financial inclusion where few hold bank accounts.
- Provide a safe, low-cost alternative to private forms of money; serve as a bridge and yardstick to measure the value of private monies, similar to cash.
- Enable wholesale forms to pay for tokenized financial assets, such as bonds issued on blockchains.
Key drivers of CBDC success:
- Payments environment: extent of other countries’ CBDC adoption, obsolescence of cash, proliferation of private money forms.
- Policy decisions and private-sector response: communication strategies and incentives for distribution, integration, and adoption are as important as technical design.
- Questions for fintech and developers include: will they onboard merchants to accept CBDCs; will they make CBDCs easy to integrate into financial services and messaging apps?
- Evolution of technologies: AI could amplify benefits (rapid, accurate credit scoring; personalized support for low financial literacy) but requires protection of personal privacy, data security, and mitigation of embedded biases.

Present problems:
- Cross-border payments remain expensive, slow, and available to few.
- Remittance costs have declined but "remain above Sustainable Development Goal targets."
Short-term actions:
- Improve existing systems in line with the G20 Roadmap to enhance cross-border payments.
- IMF and World Bank will soon publish a common plan to provide capacity development to countries in this area.
Medium-term possibilities:
- Develop next-generation cross-border platforms that can:
- Act as virtual town-squares where central banks, commercial banks, and potentially households and firms can exchange CBDCs in wholesale or retail form.
- Interface with traditional forms of money and manage payment risks.
- Platforms are being explored by banks, fintech companies, and public-sector actors (including BIS Innovation Hub and Monetary Authority of Singapore).
Policy design needs:
- Platforms must allow countries to manage capital flows and retain control over their money supply.
- Common rules are needed on anti–money laundering and countering the financing of terrorism (AML/CFT) and on data protection.
- RegTech (AI-driven compliance solutions) could reduce compliance costs and speed processes.

The public sector should act as a catalyst to ensure safety, efficiency, and to counter fragmentation, not to crowd out private innovation.
Need for a "compass": establish desirable policy properties for cross-border platforms and coordinate on design contours.
No single institution can provide guidance; collaboration across international institutions, central banks, and ministries of finance is required.
IMF commitment: IMF staff will participate as observers in project Guardian (Monetary Authority of Singapore) to advise on implications for the international monetary system; the IMF "can and will play its part."

Launch of a CBDC Handbook available on the IMF website starting the day of the speech; intended to collect and share knowledge on CBDCs for policymakers around the world.
Media relations contact provided:
- PRESS OFFICER: Huong Lan Vu
- Phone: +1 202 623-7100
- Email: MEDIA@IMF.org
- @IMFSpokesperson

The voyage will continue on the "high seas" for some time, but the potential payoff is a more inclusive international financial system.
Call to persist: do not "disembark at the first island" nor turn back; value is in the voyage and in bringing "new eyes" to longstanding and new challenges.
Invitation to continue collaboration across public and private sectors to "sail together."

Source: The Digital Finance Voyage: A Case for Public Sector Involvement, Keynote address, Singapore Fintech Festival, November 15, 2023.