Global Regulatory Summit – Safe and Inclusive Financial Services Panel

Answer: Central Bank Digital Currencies (CBDCs) can significantly enhance the inclusiveness and security of digital financial ecosystems by providing a reliable and accessible form of digital money. For Micro, Small, and Medium Enterprises (MSMEs), which account for a substantial portion of global employment yet often face barriers in accessing finance, CBDCs offer a pathway to more equitable prosperity. By digitizing monetary systems, CBDCs facilitate simple and people-centric digital lending, reducing the reliance on traditional banking mechanisms that may exclude small businesses.

Building on the framework of a global network of regional networks of sandboxes, as proposed at the WSIS 2019 High-Level Panel of Ministers and Regulators on Enabling Environment, CBDCs can be developed and tested in a controlled and collaborative environment. This structure promotes localized learning and adaptation while fostering international collaboration. Regional sandboxes allow regulators to tailor their approaches to local conditions, addressing specific challenges and priorities. By collaborating closely with neighboring regulators, these regional networks facilitate the sharing of best practices and innovative solutions.

The ITU’s digital cross-sector regulation repository can play a crucial role in this process. By serving as a centralized database of regional and national use cases, the repository allows regulators to access, search, and contribute to a growing body of knowledge. This resource supports the continuous improvement of regulatory frameworks, ensuring that they evolve dynamically in response to new challenges and technological advancements.

Elaborating on Digital Asset Registries (DARs):

Digital Asset Registries (DARs) can significantly enhance the financial resilience of MSMEs. DARs function similarly to land title registries by providing a formal mechanism to record ownership of digital assets. This recognition unlocks substantial economic value by enabling digital assets to be used as collateral for loans, thus increasing MSMEs’ access to finance.

In the absence of clear ownership and registries, much of the world’s digital assets remain economically inert. DARs address this issue by formalizing digital property rights, allowing for secure and efficient transactions. This is analogous to the historical formalization of land rights, which unlocked hidden wealth and facilitated economic growth. Digital asset registries can similarly transform the digital economy by making vast amounts of digital capital accessible for economic activities.

Implementing DARs within the framework of CBDCs involves creating a robust legal and technical infrastructure. This includes defining digital property rights, establishing secure and scalable registry systems, and ensuring regulatory oversight to maintain trust and transparency. By integrating DARs with CBDCs, we can enhance creditworthiness assessments, reduce fraud, and increase financial inclusion for MSMEs.

Promoting Financial Stability and Inclusion:

Digital asset registries and CBDCs, when combined, can promote financial stability by reducing systemic risks. DARs provide transparency and traceability, essential for assessing and managing financial risks. By enabling non-bank financing using digital assets, DARs reduce reliance on traditional banking systems, thereby mitigating risks associated with bank runs and financial crises.

This integration also supports the development of a competitive market for MSME financing, facilitated by Prosperity Data Networks (PDNs). PDNs aggregate and analyze economic and behavioral data, enabling informed lending decisions without relying on concentrated data power held by a few large tech companies. This decentralized approach ensures equitable access to credit and fosters a vibrant ecosystem of digital finance.