CBDC and deep financial inclusion

Shedding light on one of the innovative aspects of the BABB platform

At BABB, we believe that Central Bank Digital Currencies (CBDCs) are just around the corner, bringing huge social and economic benefits for the local and global microeconomy.

Many central banks have dropped teasers in the last few years about issuing digitised versions of the national currency, including the Bank of England. BoE Governor Mark Carney also made reference to the huge potential of CBDCs in his recent Future of Money speech.

Deep financial inclusion

We believe CBDCs are essential in establishing payment networks and stimulating economies at the local level. We aim to work with central banks to achieve our goal of deep financial, economic and social inclusion.

What is deep inclusion? Well, we believe that the work of financial inclusion isn’t done when someone in a rural village or emerging economy can make payments. We intend to use CBDC to support grassroots and community initiatives and stimulate local economies.

Why CBDC?

Blockchain technology offers an opportunity to digitise cash and preserve its main features: universality, P2P exchangeability, anonymity and a constant nominal value. With this technology, people are able to hold assets directly, just like banknotes and coins are held in a wallet today.

CBDCs would allow individuals and businesses to hold accounts at the central bank directly. This would enable people to make online transfers and P2P payments, without the need for a bank, just like passing cash from one person to another.

We think there are four main reasons that a CBDC is the right tool for this job.

CBDCs are legal tender with all the properties of fiat money combined with the advantages of cryptocurrencies, such as fast, low-cost international transfers which are idea for micropayments. Central banks can establish their own presence in the digital currency market and protect their economies from mass adoption of private cryptocurrencies, while retaining control over the regulatory framework. CBDCs would create a level playing field that offers access to startups and other small players, so that they’re no longer dependent on the balance sheet of commercial banks. Cash is historically associated with tax evasion and other illegal activities due to its anonymity. CBDC can help to address tax evasion and even increase the state’s tax base.

BABB and CBDC

BABB will look to work with central banks in two main ways:

1. Integrating with existing CBDCs

Central banks that have already launched their digital currency could benefit from BABB’s inter-blockchain approach and provide for a natural extension of BABB, allowing us to quickly onboard those currencies.

2. Issuing new CBDCs

Central banks looking to launch their own digital currency can use BABB’s technology, and host and operate domestically a portion of the federated network. This sub-network essentially becomes a part of BABB’s global platform, providing central banks with security and control.

Not only will this collaboration between central banks and BABB allow users to transact locally on the central bank’s local system; it will also act as a gateway to enable them to transact internationally on BABB’s global platform.

What’s next

We’re currently in talks with the central banks in two emerging markets, with a view to launching a pilot scheme to trial CBDC and cross-border transfers. We will release an update as soon as we sign a deal, and we’re aiming to have this scheme live by Q2 2019.