Opinion by Hyoung Joong Kim, Hoseo University (Professor of Digital Financial Management Department)
There are countries like Japan that mainly use cash. On the other hand, there are countries like South Korea that use credit cards overwhelmingly. Then there’s China, which skipped the next step from cash to credit cards and went straight to mobile payments.
The Bahamas was the first country to adopt CBDC, followed by Nigeria and China. However, the adoption of CBDC in these countries has been very slow. Why aren’t people ready to accept CBDC if it’s the future of money?
Since the adoption rate of CBDC in Nigeria was only 0.5%, the central bank set a limit on cash withdrawals in 2022. Instead of choosing CBDC, the public joined the ranks of street protests. Of course, the CBDC adoption rate has since risen to 6%.
CBDC is struggling because it has to compete with already established payment methods. If CBDC is seen as one of many existing payment methods, there is no reason to adopt a new currency that people are not necessarily familiar with.
Since it doesn’t cost much to mint and manage CBDC, this can be a boon for the issuer. However, from the acceptors’ point of view, they do not find it attractive enough to throw away other things and accept it. It seems difficult for CBDCs to become widely accepted on their own. If so, the central bank should pay for CBDC marketing.
The central bank has a reason to do so. CBDC based on public blockchain is a repository of big data. This high-quality data can be combined with artificial intelligence (AI) to improve the efficiency of all industries. At the same time, countries can efficiently manage their fiscal policies, and economic entities can be proactive.
Of course, central banks can issue CBDCs based on private blockchain. However, in this case, people may suspect that the government is managing fiscal policy opaquely while controlling the people. In addition, the public can not have access to valuable information about transaction records. From the public’s perspective, it’s not much different than using paper money.
Nigeria used a Hyperledger-based private blockchain for its CBDC, but without smart contract functionality. People don’t really care about that kind of technical stuff. But if it’s compelling, they’ll adopt it anyway.
Last month, the Thai government announced that it would give 10,000 baht per adult. In this case, it is not bad to consider an experiment in which the Bank of Thailand makes stablecoin and distributes them to the people. If the government just wants to give 10,000 baht as an incentive to spread CBDC, it can even avoid populist accusations that it is handing out helicopter money.
The biggest obstacle to the spread of CBDC is the installation of wallets, and no one will complain that it is difficult to use wallets while receiving 10,000 baht. Anyone who installs a wallet will get the 10,000 baht, and if they don’t, the money won’t come in.
When the money comes in, people will rush to the store, so the store has to install the app itself. This seems to be a profitable business anyway, as the budget is needed to promote digital currency literacy and build infrastructure.
Creating a smart contract in the CBDC that reduces its face value by 5% every time it is not traded for a month will speed up the circulation of money tremendously, boosting the economy and collecting a lot of taxes. This was confirmed in 1934 in a small town in Austria. What is absurd is the fact that the embarrassed Austrian central bank stopped the experiment with a lawsuit.
Since the flow of CBDC is transparently recorded on the blockchain, money cannot flow to unjust places. Even if it goes that far, all transaction records are transparently investigated, so tracking is possible. And big data analysis is possible. The path of the CBDC’s movement will be revealed in real time, from the aorta to the microvessels.
Based on this experience, the central bank can design a great CBDC in the future. The Thai government can study privacy violations, security such as abnormal transactions and money laundering, and other issues that people fear in advance and take countermeasures. This temporary CBDC may remain a monumental experiment in financial history.
Korea has handled the COVID-19 situation well by paying emergency disaster relief funds to all households. If the Korean government had issued stablecoin at that time, history would have been made. It would have been great if the government had used the funds not only for emergency disaster relief but also for the marketing costs of the future CBDC.
The local currency issued by local governments in Korea is a voucher, so it’s not that it doesn’t have an economic effect, but it’s not very effective. This is because they are actually vouchers, not money. The local government sells the vouchers at a discount and makes up for the loss in taxes every time.
Governments should consider issuing stablecoins instead of vouchers with a one-time discount when they are first issued. It will be very helpful for big data and artificial intelligence research as it accumulates a lot of public data as it circulates. In addition, the government can collect a lot of taxes and collect taxes that exceed the taxes put into the issuance, so it’s a profitable business.
Credit cards and various payments spend money on marketing to get subscribers. CBDCs are no different. It would be difficult for a central bank to officially spend on marketing. However, it is desirable for governments to consider policy of killing two birds with one stone by releasing some taxes when issuing local currencies as a form of stablecoin and achieving marketing effects.