Is There a Problem to Solve?

During a lively panel at the World Economic Forum 2023, South African Reserve Bank (SARB) Governor Lesetja Kganyago posed an intriguing question: “Is this a solution looking for a problem or do we have some real problem that we are trying to solve?” As debate surrounding Central Bank Digital Currencies (CBDCs) unfolds, his remarks echo the skepticism of many finance professionals. After all, if a fancy new tech toy isn’t addressing a genuine issue, is it really necessary?

Reasons for Implementing CBDCs

Despite Kganyago’s reservations, many countries are diving into the CBDC pool with enthusiasm. Advocates argue that CBDCs can:

• Modernize Central Banks: Just like upgrading your phone to the latest model, central banks aim to update their outdated systems.
• Enhance Payment Efficiency: A digital currency could make national payment systems as smooth as a well-oiled machine.
• Tackle Market Failures: CBDCs could potentially fix domestic market hiccups that leave consumers frustrated.
• Promote Financial Inclusion: This technology could provide unbanked populations access to financial services, akin to giving everyone a ticket to the economic ride.

Demand Drives Decisions

Even as proponents push for swift CBDC adoption, Kganyago emphasizes the importance of gauging public interest. He argues that before jumping on the digital currency bandwagon, it’s crucial to initiate a nationwide conversation to ensure that this innovation has real demand. After all, what’s the point of launching a product that no one wants or understands?

A Cautious Approach

The SARB is taking a deliberate and measured approach regarding CBDCs. In Kganyago’s words, “We are going to be good students when it comes to retail CBDCs and would rather be a follower than to be a first mover.” So, while others may sprint ahead, SARB is exercising caution and is prepared to sit on the sidelines until the waters are clearer.

The Crypto Conundrum

Interestingly, this isn’t Kganyago’s first rodeo in voicing skepticism. Back in 2021, he mentioned his concerns about classifying cryptocurrencies as “currency.” He pointed out that crypto only ticked two out of three boxes defining a currency, mainly due to its lack of widespread acceptance. Perhaps crypto is the quirky uncle at the financial family reunion—interesting, but not quite ready to join the main conversation.

Bridging the Gap between Finance Worlds

Aside from CBDCs, another intriguing topic arose during the WEF 2023: the interaction between decentralized finance (DeFi) and traditional finance. Cointelegraph reporter Gareth Jenkinson engaged in conversation with Ava Labs CEO Emin Gun Sirer, who highlighted how the two financial worlds are moving towards a convergence, regardless of their initial differences. DeFi may just end up being the cool new cousin that everyone could benefit from knowing!