A new ITU-T Focus Group will investigate the emerging questions of how best to standardize and regulate the interoperability and security aspects of digital fiat currency. The group is open to any interested party.
Digital fiat currency authorized and issued by a country’s Central Bank is recognized as legal tender and can be viewed as the digital equivalent of banknotes and coins. The adoption of digital fiat currency is expected to drive the expansion of the digital payments ecosystem by offering a secure, interoperable payment instrument suited to our increasingly digital world.
Ahead of the Focus Group’s first meeting in Beijing, China, 12-13 October 2017, ITU News spoke with Daniel Reiss from the Central Bank of Brazil to learn more about the trends to be supported by the Focus Group.
Money has been going digital for some time. Advances in information and communication technology (ICT) are set to complete this transition. Digital financial services have dramatically increased the convenience of transferring money from one bank account to another. Money transfers (even cross-border), bill payments, loan requests—all of these transactions are now possible through technology.
Developing countries have pioneered the delivery of digital financial services to users of feature phones without broadband service. Crucially, these services do not rely on users possessing a bank account, highlighting just how important these services may become in expanding financial inclusion.
The use of mobile phones for small payments has flourished in some African countries, with Kenya and Tanzania among the best-known examples. This model has also been adopted as a major financial-inclusion policy in Latin-American countries such as Peru.
The figure below displays the ratio of cash in circulation outside banks (money in people’s hands) to broad money (cash in circulation as well as digitally represented money such as that deposited in bank accounts). The 2006-2015 data for selected countries is taken from the BIS Red Book.
The 2015 figures show India and Russia as the countries with the largest ratio of cash in circulation to broad money, at 15%. This ratio decreased very considerably in Russia from 2006 to 2015 (30% to 15%). India shows a more modest downward trend.
All other countries are below the 10% ratio, with the ratio below 5% in the United Kingdom, Brazil, South Africa and Korea. It is important to note that this ratio has remained somewhat stable in these countries over the past decade.
The availability of electronic replacements for cash is dependent on the cost of telecoms infrastructure. In remote areas without reliable telecoms infrastructure, the e-monies currently available are not less expensive than cash. As telecoms infrastructure expands, these cases will become increasingly rare – the use of cash will gradually be restricted to smaller niches.
As the use of cash is restricted to smaller niches, it may become inefficient for central banks to continue administering its logistics.
e-Money issuers are most often private institutions that create digital-token representations of money in circulation, money issued by Central Banks. Reversing this equation appears imminent – Central Banks will soon distribute digital money while private institutions create paper-token representations of digital money as a niche service.
With advances ICT, e-money’s value as alternative to cash may be granted a higher status.