For many of those involved in implementing central bank digital currency platforms, the goal is the same: financial inclusion. While most households can access some form of digital payments, there are still 2.5bn people globally who do not have bank accounts. Without a bank account and, subsequently, no payment history to show, credit for this population is not guaranteed and they may fall victim to paying high interest rates.
By covering all three types of financial institutions engaged in wholesale and retail CBDC – central banks, commercial banks and non-bank financial institutions – GVE’s CBDC platform provides real-time gross settlement for all users. It has the capacity to make 5.8tn transactions annually, which is enough to cover the 8bn individual and 300m corporate customers around the world.
Beyond the goals of financial inclusion, platforms like GVE also consider cost savings. Most fintech companies build light infrastructure on top of global brands like Visa and Mastercard by taking margins of between 10 and 15 basis points of the transaction value. By providing RTGS for all users, it is possible to bypass global brands, which enables platforms to substantially reduce the cost of payments.
Credit card companies, together with card issuers in each country, typically charge a total of 2.5% brand and issuing fees on transaction value in addition to the card readers’ fee and acquirer’s fee. This increases the payment cost. As merchants and companies have accounts with banks, GVE – together with all banks co-operating with GVE – does not require acquirers, further reducing the cost of transacting.
Another important priority for CBDC platforms is the green transition. According to Ajay Banga, president of the World Bank, central banks spend between 0.5% to 1.5% of their gross domestic product every year on printing, securing and distributing cash. To transport this cash to bank branches and ATMs, over 100,000 armoured vehicles are used by banks. New digital systems seek to eliminate the fuel consumption and carbon dioxide emissions of these cars.
Finally, one of the most important considerations for CBDC platforms is security and privacy protection. The public key infrastructure, an encryption method used in most areas of banking, is becoming increasingly vulnerable as quantum computing technology advances. GVE has patented a key management cybersecurity platform, which manages 2,000 separate keys for each user. Such platforms have the security infrastructure that could be the solution for services that require a high level of privacy protection under data regulations, such as electronic medical records. Spending can be only monitored by the bank that has opened the account. This is the same level of privacy protection available now, but the more sophisticated system will deter bad actors.
Koji Fusa is Chief Executive Officer at GVE.
This article is based on a podcast episode on the technical issues around the introduction of CBDCs and their policy implications. Listen here.