Policy Briefs

CBDCs: A Gateway to Finance for MSMEs: Paving a Practical Path to Prosperity

Task Force: Future of the Global Economy
Authors: Mei Lin Fung, Patrizia Bussoli, Jascha Stein
Pubblication Date: May 2024

Abstract

Central bank digital currencies (CBDCs) pave the way for the digitization of the monetary system and thus form the prerequisite for enabling simple and people-centric digital lending. There are 4 countries which adopted CBDCs, 36 with pilot projects and over 70 doing research and development (CBDC Tracker 2024). Because the benefits of CBDCs extend beyond the financial sector, CBDC costs and benefits go beyond transmission of monetary policy. CBDCs must be examined in terms of the impact on the whole economy which ultimately is impacted by the depth and breadth of capital markets. Accessibility of digital assets for micro, small and medium enterprises (MSMEs) is a key part of the process in evolving CBDCs supporting a more equitable prosperity as AI widens divides (Fung 2023). MSMEs account for most of global employment. Unfortunately, insufficient access to finance by MSMEs was worsened by the Covid pandemic. Digital access to microcredit through credit scoring based on the digital footprint, pioneered by the publicly listed enterprise Micro Connect in Macau, is an effective and efficient way to facilitate MSMEs access to international finance. To expand beyond Macau, requires two conditions: digital public infrastructure that supports MSMEs and a legal framework with national and cross border recognition. In effect, access to loans for MSMEs can be simplified and expanded if digital assets can be used to secure loans. Digital asset registries, similar to land title registries, are an initial step in establishing market prices for digital assets. Just as land title registries have evolved over time, digital asset registries must also develop to meet the financing needs of MSMEs. The Puerto Rico Mercantile Bank International is taking first steps in this direction.
We recommend the G7 initiate and oversee a network of CBDC/Digital Asset Registry (DAR) Sandbox’s coordinated and promoted at an international level to strengthen MSMEs. This will connect research projects on CBDCs, monetary policy transmission and MSME financing and digital asset registries. Registries of digital assets should be set up and recognized at the international level.
The expansion of practical research can enable countries, especially developing countries, to launch CBDC/DAR Sandbox’s with the multilateral development banks to learn from each other and work closely with BIS and the IMF.