Imagine a financial system where digital payments are accessible to everyone, regardless of their banking status, and transaction costs are significantly reduced. This is the vision driving the Central Reserve Bank of Peru (CRBP) as it seriously explores the possibility of launching its own Central Bank Digital Currency (CBDC). According to John Kiff, a respected research director at the Sovereign Official Digital Association (SODA) and former IMF advisor, Peru is taking a measured and thoughtful approach, initiating a series of research papers to delve into the intricacies of a retail CBDC.
Why is Peru Considering a CBDC? Unpacking the Motivation
The CRBP’s interest in a CBDC stems from a critical observation: Peru’s current payment landscape is unsustainable. While digital payment adoption is growing, significant challenges remain, particularly concerning financial inclusion. A substantial portion of the Peruvian population, approximately half, remains unbanked. The introduction of a CBDC is viewed as a potential game-changer, capable of:
- Boosting Financial Inclusion: The primary goal is to empower the unbanked population with access to digital payment solutions. This demographic, surprisingly, includes a large segment from “non-poor” households, highlighting that lack of banking access isn’t solely a poverty issue.
- Reducing Transaction Costs: Streamlining payment systems with a CBDC could lead to lower transaction fees, benefiting both consumers and businesses.
- Improving Payment System Interoperability: A CBDC can act as a unifying force, fostering better interoperability between existing payment systems, creating a more seamless financial ecosystem.
The CRBP’s research paper emphasizes that understanding the characteristics of the unbanked population is crucial for a successful CBDC implementation. Let’s take a closer look at who these unbanked individuals are:
| Characteristic | Details about Unbanked Population in Peru |
|---|---|
| Proportion of Population Unbanked | Approximately 50% |
| Origin of Unbanked | Three-quarters from “non-poor” households |
| Savings Status | Over 79% have no savings |
| Location | Predominantly reside in cities |
| Employment | Almost all are employed (often in informal sectors) |
| Technology Access | Nearly all own cell phones |
This profile paints a picture of a population that is not necessarily impoverished or disconnected but rather underserved by traditional banking infrastructure. Their high mobile phone ownership is a particularly encouraging factor for digital currency adoption.
Digital Payments on the Rise: A Fertile Ground for CBDC?
Despite the significant unbanked population, Peru has witnessed an impressive surge in digital payment usage, increasing fivefold since 2015. This indicates a growing appetite for digital financial solutions and suggests that the Peruvian population is becoming increasingly comfortable with alternatives to cash. This trend creates a favorable environment for the introduction of a CBDC, which could further accelerate the shift towards digital payments and broaden financial inclusion.
Peru’s CBDC Journey: A Phased Approach
The CRBP is not rushing into CBDC implementation. Instead, they are adopting a methodical, five-phase approach. The recently released research paper marks the completion of the first phase, focused on understanding the necessity and design considerations. While a concrete CBDC development timeline is yet to be announced, this initial step demonstrates a serious commitment to exploring the potential of digital currency.
To ensure a user-centric approach, the CRBP has also launched a 25-question survey targeting potential CBDC users. This proactive step to gather feedback directly from the public underscores the central bank’s intention to create a CBDC that truly meets the needs of the Peruvian people. The survey, due on April 30th, will provide valuable insights to inform the subsequent phases of research and development.
International Collaboration and Expertise
Peru is not embarking on this CBDC journey in isolation. Recognizing the complexity of developing a digital currency, the CRBP is actively seeking international collaboration and expertise. In May 2021, Peru secured technical assistance from the International Monetary Fund (IMF), leveraging the IMF’s global experience in monetary policy and financial systems. Furthermore, in November 2021, CRBP President Julio Velarde announced collaborations with countries that are at the forefront of digital currency innovation, namely India, Singapore, and Hong Kong. Learning from the experiences and best practices of these nations will be invaluable as Peru progresses in its CBDC exploration.
Who is SODA and John Kiff’s Role?
The involvement of the Sovereign Official Digital Association (SODA) and John Kiff adds another layer of credibility to Peru’s CBDC initiative. SODA is described as a technology-agnostic consulting firm specializing in central banking, digital finance, and the burgeoning Web3 sector. John Kiff’s background as a former IMF section specialist further reinforces the depth of expertise being brought to bear on this project. His focus on the challenges of a retail CBDC highlights the practical and user-centric approach being taken.
Looking Ahead: What to Expect from Peru’s CBDC Exploration
Peru’s methodical and collaborative approach to exploring a CBDC is commendable. By focusing on financial inclusion, interoperability, and reduced transaction costs, the CRBP is addressing critical needs within its economy. The research papers, public surveys, and international collaborations all point towards a well-considered strategy. While the journey is still in its early stages, Peru’s proactive steps signal a strong potential for a future where a CBDC plays a significant role in its financial landscape. Keep an eye on Peru as they continue their exploration – their progress could offer valuable lessons for other nations considering their own digital currency paths.
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