As the number of countries embarking on the Central Bank digital currency (CBDC) pilot trial increases, key industrial players have raised concerns about whether the digital currency will support financial inclusivity.
In a video briefing, the head of central bank engagement at Ripple, James Wallis, demonstrated his positive stance on the role of CBDC in strengthening financial inclusivity.
Factors Contributing to Financial Exclusion
The executive defined financial inclusivity as the strategic actions taken by the government to broaden the use case of financial services to vulnerable communities. It also offers financial opportunities to low-income earners.
With the changes in the financial landscape, Wallis admitted that the marginalized and low-income earners have been limited from accessing some critical financial services. Lately, financial exclusion has emanated from a lack of solid financial ties that restrict the community from accessing credit services, savings and other financial services.
The executive noted that most of the financial institutions have turned to money-making schemes that prioritize shareholders’ interests over customers’ needs. Wallis regretted that the prevalent trends in the financial industry have limited the accessibility of financial products to customers.
This has primarily undermined the customers ‘ ability to create value in their investment or maximize their profits. Wallis lamented that the evolution of the financial industry has undermined the accessibility of critical financial products.
He believes that the launching of CBDC will provide customers with cost-effective solutions. Unlike the conventional financial system, the executive anticipates that CBDC will lower the cost of accesing some financial products.
Significance of CBDC in Addressing Global Financial Challenges
A close examination of the digital currency, Wallis noted that CBDC exhibits distinctive features that streamline the payment processes. The executive anticipates that the CBDC will enable the user to have a strong credit history that will not be linked to any financial institution.
This will allow the customers to enjoy the benefits of having a credit line which is easy to borrow when the need arises. Also, investors will be allowed to maximize the borrowing limits to support their businesses in attaining the desired goals.
From the endless benefits of CBDC, Wallis described the digital currency as a transformative innovation that will address the shortcomings of financial inclusion. Interestingly the executive bullish outlook on the role of CBCD in transforming the financial sector aligns with Ripple’s core objective of increasing the usage of blockchain.
Ripple Partnering with Other Central Banks
For the past few months, Ripple has entered into a strategic partnership with around 20 central banks to support equitable access to the financial system. Through the partnership with the central banks of Bhutan, Palau, Hong Kong, and Colombia, Ripple has developed a blockchain-powered platform that supports the issuance of CBDC.
Currently, most of the apex banks have proceeded with the CBDC pilot trials to assess whether the digital currency can be implemented in real-world situations. The completed pilot trial of the CBDC has showcased their resilience to adapt to the changes in the financial ecosystem.
The digital currency has proved to be secure, with massive potential for onboarding users and verifying information.