Answer1 (28)
.docx
School
University of Michigan, Flint**We aren't endorsed by this school
Course
EGR 260
Subject
Information Systems
Date
Dec 17, 2024
Pages
3
Uploaded by MajorValor14278
Op-Ed first draft The Potential of Digital Currency: Infrastructure and Education MatterPicture a new world where everyone can send money across borders at any moment without the need for banks or intermediaries. This is what Central Bank Digital Currencies (CBDCs) – government-issued digital currencies – are promising to be, as they are set to transform global finance. However, this vision will remain a distant dream without one critical element: strong infrastructure. Therefore, if policymakers do not invest in high-speed internet, the benefits of CBDCs can hardly be achieved. While CBDCs have already proven beneficial in some countries, the fundamental challenge remains clear for instance, if there is no fast and reliable connection, most of the population is left behind from many advantages. Since access to digital networks is essential to inclusion in the modern economy, governments must invest in infrastructure to make CBDCs usable for the population.CBDCs are good for communities like the Sand Dollar in the Bahamas and Nigeria e-Naira has many functions. These advantages include lower transfer costs, increased access to finance, and greater efficiency in the economy. To illustrate, the pandemic did this through the Sand Dollar by enabling anyone with a smartphone in a remote rural area to meet their economicneeds, further grow local businesses' capabilities, and continue transacting during the Pandemic.1. Similarly, the eNaira has also made payment mechanisms easier by allowing low-cost transacting and promoting frequent participation in the formal economy of Nigeria. And althoughthese examples showcase the transformative potential of CBDCs, they highlight just how difficult it will be for governments to get them right.In the Bahamas, for instance, many remote islands need more stable internet connections,meaning that residents in these areas need help accessing and using the Sand Dollar effectively. This connectivity gap reduces the chance to engage in digital transactions and the scope of the CBDC. Likewise, the main downside of e-Naira is still seen in the regions of Nigeria, including the northern and southeastern states, where the Internet infrastructure is still underdeveloped. If proper funding is made to these important sectors, CBDCs will likely lock out the groups of people they seek to include.1Can Bilgen, Martin Dutto, and Tim Colberg, “Analyzing the CBDC Tree: The Case of the Bahamian Sand Dollar,” Three-Level Central Bank Digital Currency Design Framework (2024).
Cybersecurity is yet another important dimension of infrastructure. That is because hackers love digital currencies, and a single hack could compromise public trust in the system, which puts all developers working on digital currencies at risk. This would require governments to enforce cybersecurity, including encryption and fraud detection technology, to secure their users and ensure CBDC systems.2For instance, in 2021, the People’s Bank of China said that multiple hacking attempts were carried out on the testing environment of its digital yuan, but none was successful to a large extent. In the same year, the Bank of Thailand had to delay the pilot project in the digital baht because of the risks that hackers might exploit in cybersecurity. Therefore, if these systems are not well secured, there could be a profound breakdown of the trust structure for the CBDCs.Investing in infrastructure is important, and so is consumer education. Despite the great promise of digital currencies, many people still need to be convinced about their value. Numerous stakeholder groups still need to be confident about their privacy, possible misuse, or technological redundancy of existing FI tools compared to next-gen asset classes. There needs to be a public education campaign regarding these fears and the benefits of lower costs, convenience, and better financial inclusion. The second part of these campaigns should also teach people how to use CBDC safely, gaining confidence in the system. A CBDSC, like any other successful currency, is built on trust. 3. Clear communication is important in a country like Nigeria, where much of the populace is cynical concerning government-backed programs and initiatives. This will require governments to illustrate how CBDCs underpin user privacy while ruling out possible scenarios of abuse/illegal activity, such as scamming. They can build trust for wider adoption by taking these concerns head-on.There is tremendous promise in CBDCs and their game-changing power for economies; they must be executed well, which has more to do with implementation than tech. Governments can provide the infrastructure and education necessary to realize financial inclusion and economic growth through CBDCs. The choice is no longer between cash and CBDCs but about whether we are ready for their accessibility to all and associated societal benefits as we progress towards the future of the digital economy.2Daniel Broby, "Central Bank Digital Currencies: Policy Implications," Law and Financial Markets Review 16, no. 1-2 (2022): 100–115.3Jack Ree, "Nigeria’s eNaira, One Year After," International Monetary Fund (2023).