Digital currencies provided by central banks can be read as a revolutionary technology, a step towards participating in a technological environment that is better suited to our times and that could also have been sped up by limiting cash for health checks during COVID- 19th
However, this perception would limit the impact of cryptocurrencies on the sector; Long before the all-time highs for Bitcoin, which positioned us from $ 20,000 to today’s limit of $ 60,000, there were experiments in the development, prototyping and proof of concept of related central bank currencies. which rose in 65 analyzed countries from 42% in 2019 to 60% in 2020, according to a survey by the Bank of Basel (central bank of central banks).
This interest is no coincidence, it comes from the participation that the cryptographic market had to present itself as a solution to the problems of a poor monetary policy, whereby Bitcoin is a decentralized reaction mechanism, that is, it does not belong to any authority, which can use the purchasing power at will to decrease. This reaction was deemed necessary due to the historical and recurring involvement of states to cover the budget deficits after the abandonment of the gold standard and the economy to be based on credit expansion policy, which led to the gates of the lived inflation phenomenon today, and that its passage on the next crisis could trigger the financial markets.
It is not necessary for a currency to be supported by its government, at least it is suspected in the development of cryptographic alternatives, since their users do not see stability, nor a safe store of value, in the example of the Venezuelan bolivar, the Argentine peso or the Lebanese pound which is worth keeping your income in the face of the constant devaluation of your currency.
With this in mind, we need to study the integration of Latin American residents into the digital economy, how deep their participation is and what difficulties there are in carrying out such projects where central banks would conquer the niche market that has been generated and the money already invested in cryptocurrencies channeled; that if they do not act, they could lose control of the monetary policies of the countries in the region.
In addition, an emphasis will be placed on how digital commerce applications use this space that central banks can occupy, how their integration into society can be the final step in removing financial boundaries, and why the creation of a CBDC is necessary is held with friendly protocols in the region.
Is Latin America an undeveloped financial region?
To answer this question it is necessary to understand that a company’s financial participation is determined by indicators of access to financial products, understood as banks, non-banks, ATMs, among others, the idea is to be able to quantify the accessibility of this type of Products that can also collect information about the number of people who own financial derivatives, particularly savings accounts, credit, insurance or payment systems.
According to a survey by the Organization for Economic Co-operation and Development (OECD) and the Latin American Development Bank (CAF), which integrates financial literacy, attitudes and behavioral indicators, a scale has been created that can integrate them. So to quantify the level of financial literacy, it is, that opinion has been measured before sentences like money are spent, I’d rather live day to day, I’d rather spend money than save for the future, with the aim of determining the respondent’s level of long-term thinking. Additionally, these questions have been tied to budget creation and use in conjunction with funding, savings, and choosing before.
The result of the survey shows that only Chile is able to compare itself to G20 countries, with the developed countries having a higher average in terms of financial literacy than the countries of the Latin American region. In addition, the survey that was carried out shows that regular saving with a budget and the use of saving systems fares among the countries that are used as a comparative model of the developed economies depending on the countries of the Latin American region.
This result increases the latent risk for the region that roughly half of the population of Latin America still does not have access to formal financial services and lags behind the emerging economies in Asia. Although financial inclusion has increased over the past decade, a 2017 measurement by the World Bank’s Global Findex4 found that 55% of the region’s adult population have a bank account, up from 360 million adults who are still do not participate in financial services available in their region.
It should be borne in mind, however, that COVID-19 has accelerated the digital enablement of many services that had not previously reached the population and enabled users to become familiar with and in this way the apps, platforms and payment gateways for order delivery They didn’t have access to digitize before in relation to their finances.
Can central banking play a relevant role in digital finance?
It should be borne in mind that the main benefit an emerging market can enjoy in implementing the CBDC is that communities that do not have access to traditional banking and sectors that may previously have been excluded have access to an in in the form of I kept savings deposits a stable unit of account and loan loans, which benefited macroeconomic and financial stability. In addition, access to means of identity, which can be based on reliable technologies, can only be forged through the active participation of the state, using the example of the development of blockchain technology, as the creators of the DIDI project noted, â ?? ?? (â ?? ¦) It aims to strengthen public administrations and bodies responsible for the identification of persons with new international standards such as verifiable ID cards or decentralized identifiersâ ????.
According to an analysis of the Global Payment Report, digital wallets such as applications that serve as gateways and payment platforms are expected to have continued growth that will be able to outperform credit cards as the main payment method by 2024, an absorption of 31.2 % of all electronic business transactions. This makes us realize the need for greater central bank involvement in order to create efficient payment mechanisms capable of communicating with one another, using and crossing the boundaries that have hitherto prevented the various economies of the region from unifying.
It is necessary that every individual and company have access to financial products that are accessible and practical, services that transact, make payments and save, and are made in a sustainable manner. Fintech-related applications have played an important role in this advancement, but there are security risks associated with the technology that is evolving.
While this should not preclude the necessary advancement of the financial system that can be achieved with fintech, governments need to understand the level of involvement they need to choose in this type of technology, as the Bank of Basel states in its founding report on Central Bank Currency PrinciplesBeyond the achievable profitability, the goal of which is embedded in all third-party applications, priority must be given to the development of ecosystems that guarantee the operational safety and reliability of the system.
The challenges posed are not only related to the lack of participation of society in its financial culture, according to a recent OECD report on country accessibility and the gap between rural and urban areas, showed that the number of exclusions in industrialized countries is increasing around 5%, which corresponds to the figures for the Latin American region, a figure that increases to 60% of rural households with no internet access. Brazil is one of the countries with the largest differences between rural and urban areas, with coverage of 41% for rural areas and 66% for urban areas. Another example is that Mexico reported 56% of the total country with internet access, with 40 million Mexicans barred from accessing the services offered on the net. Consequently, this would mean that despite the increase in electronic transactions, there is still room to be made in the region and the full boom of the economy can be seen thanks to the participation of most of the users.
Can central banking be excluded from the region’s financial growth?
It is clear that there is an infrastructural problem that will limit the level of user participation in Latin America, which also poses two challenges:
1. The public’s trust in the use of fintech applications.
2. The accessibility that may result from the development of technologies that enable you to use the services available to you to the extent that it becomes easier to obtain financial products, and the practical use this means for everyday use .
It is therefore important to highlight that the Latin American phone market has been growing steadily, with 422 million subscribers in the entire region for 2019, which is 67% of the total population, with 80% of this population having mobile internet subscriptions, according to a survey from GSM Intelligence from 2019.
For 2018, mobile technology-related technologies were calculated to generate 5% of Latin America’s GDP, i.e. $ 260,000 million, resulting in 1.7 million jobs around $ 300,000 million, with each country benefiting from the use and improvement of mobile Services benefits that bring productivity and efficiency with them.
In terms of usage of the technology, Stadista’s figures assume that by 2024 the number of people buying services on the Internet will reach 351 million users. This makes it clear that e-commerce related application development is still a growing sector, the transactions generated in these applications are vital to the region’s economy, so we need to ensure that they are over © s of. Safe, reliable and accessible means of payment is the priority of every single developer.
Even so, the entire weight of responsibility cannot be delegated to third parties, which means that it is detrimental for the central bank to stay away from participating in this new phenomenon. For example, developments of identity mechanisms that cannot be provided by third parties can be integrated through development that is implemented in a CBDC, as indicated by Didenko and Buckley.
The above figures only show the need for a correlation between payment methods and funds provided by central banks, interactions that can be linked and that allow communication between the different countries in the region. It is unlikely, even partially impossible, that the central banks will get out of the connection with the above trading, however the involvement of the commercial activities involving cryptocurrencies occupies numbers that will continue their increasing trend of seeing no implemented alternatives by the central bank .
According to a study by Atléntico, Argentina became the Latin American country with the highest volume of digital transactions of $ 48 million in 2020, followed by Brazil, Chile and Mexico powered by p2p technology, which is not only used in the region, but was also an important trend in countries like Nigeria, Kenya and Vietnam.
This enables us to visualize that cryptocurrencies are being used as methods of reserving value, sending and receiving transfers, and accessing goods and services available on the internet without political restrictions. The implementation of this activity should be provided by the state in a traditional economy, as mentioned in the benefits of the introduction of the CBDC, as many users are forced to adopt the mentioned alternative transfer methods as a digestible solution is not found by the majority of the population, since they are excluded from those available in the traditional central bank model.
So who will win the race for financial digitization?
Humans’ need to be able to market goods and services in a safe environment has been the engine of recent currency revolutions in the sense that they will always seek to participate in and market financial products that are more convenient for either of the two parties involved. As mentioned in the section on economic growth in Latin America, mobile internet technology integration is a sector that, despite the goals achieved, still has resources and development to use. The trend is clear, for residents of the Latin American region, access to financial products in the form of mobile applications was the easiest way to educate citizens about the assets available that enable their use, in addition to ¡Yes, to encourage commercial exchanges between the participants.
It is for this reason that the involvement of Exchange Binance and LocalBitcoins, in relation to the fact that their use accompanies not only the exchange of cryptocurrencies, but as a payment gateway between the various remittances sent everywhere, is particularly noteworthy in the Latin American territory. According to a report by Chainalysis, the region received $ 353 billion in cryptocurrency transactions between July 2020 and June 2021, which is 9% of the total tracked worldwide and is the sixth largest region with the largest economy.
However, this does not exclude the rest of the market players as, as mentioned in relation to the growth of digital commerce, the exponential profitability observed so far allows many companies to enter the game in order to simplify business transactions. Applications like Reserve occupy a niche market of $ 1.5M in daily transactions and recently the entry of competitor Glufco has enabled it to act as a commercial bridge into traditional banking applications and the tokens generated in NFT games.
The satanization of the preparation of these applications in the form of sanctions, as mentioned in the report by the Bank of Basel, can be detrimental to the population. The adoption of electronic currency as a means of payment has increased the financial literacy of the population using them and enabled more and more people to use alternative methods of managing their income, savings, and long-term financial literacy.
In addition, the result is an appetite for financial culture, in which more and more users are attracted not only to the use of payment platforms, but also to the mechanisms that make it possible to preserve the reserve of value over timeor. It is evident that, despite the constant and increasing volume that every country sees, it will not be easy to replace the leading role that a central bank can play in managing the country’s economic policies, electronic platforms that host their cryptocurrency or theirs want to create a digital asset that is pegged to the dollar.However, it should be borne in mind that the lack of action in relation to the participation of fintech companies can only be detrimental to the full exercise of monetary policy.
As long as there is no progress on the part of the governments of the region, whose aim is to increase the participation of users in rural areas with identity-political measures, together with the development of the necessary infrastructure to be able to expand the participation margin of the users, the Won battle for financial participation from the strongest negotiating applications and platforms. This also lets us know that the advancement of these applications and that they target the use of financial services in conjunction with the culture necessary to use them correctly will continue to be the profitable model as long as there is no public implementation guidelines.