Speech

The Digital Finance Voyage: A Case for Public Sector Involvement

November 15, 2023

(As prepared for delivery)

President Tharman, excellencies, distinguished guests: good morning! It’s a pleasure to be in Singapore again. And it’s an honor to join you this morning at this impressive forum to take stock of how far we’ve come and set the course for the future.

There is no better place to look into this future than Singapore — a place where fintech flourishes and where this festival brings the unlimited energy of fintech enthusiasts. 

FinTech innovation has already been transformative — and will continue to be so — changing the world of finance and making it much more accessible to hundreds of millions of businesses and people who used to be cut off from it.

I am proud the IMF is part of this great community and that I am with you today. I come in the footsteps of my predecessor, Christine Lagarde, who five years ago gave a speech here encouraging policymakers to follow the “winds of change,” and embark on a digital money voyage by exploring the use of central bank digital currencies, or CBDCs, and fintech.

Five years on, I’m here to provide an update on that voyage. I have four main messages. First, countries did set sail. Many are investigating CBDCs and are developing regulation to guide digital money developments. Second, we have not yet reached land. There is so much more space for innovation and so much uncertainty over use-cases. Third, this is not the time to turn back. The public sector should keep preparing to deploy CBDCs and related payment platforms in the future. Fourth, these platforms should be designed from the start to facilitate cross-border payments, including with CBDCs.

We’ve left port and are now on the high seas. This calls for courage and determination. We can learn from you: entrepreneurs, business leaders, and investors. You are sailors in the world of fintech. Every day you brave the open waters. Waves and winds are your inspiration. 

If anything, we need to raise another sail to pick up speed. The world is changing faster than most imagined. Just take artificial intelligence – a key theme of this festival. Look at the number of months before various applications reached 100 million users. The average is 3 years. It took ChatGPT 2 months!

The CBDC voyage

Adoption of CBDCs is nowhere close. But about 60 percent of countries are exploring them in some form today. CBDCs can replace cash which is costly to distribute in island economies. They can offer resilience in more advanced economies. And they can improve financial inclusion where few hold bank accounts.

In some countries the case seems dim today, but even they should remain open to potentially deploy CBDCs tomorrow. Why?

First, the benefits of CBDCs will stem from what happens in the payments environment. How many other countries will adopt CBDCs? To what extent will cash become obsolete? And will private forms of money proliferate?

Libra was a wake-up call that turned out to be a false alarm. But others, more compliant, will come knocking. In that case, CBDCs would offer a safe and low-cost alternative. They would also offer a bridge to go between private monies and a yardstick to measure their value, just like cash today which we can withdraw from our banks.

Second, the success of CBDCs will rely on policy decisions and how the private sector responds. The actions of many of you here today will matter!

Country authorities wishing to introduce CBDCs may need to think a little more like entrepreneurs. Communication strategies, and incentives for distribution, integration, and adoption, are as important as design considerations.

Will you, fintech leaders and developers, spend the resources onboarding merchants so they accept CBDCs? Will you make it easy for CBDCs to be integrated into financial services and messaging apps so people can pay each other from any environment? It depends on your return, that’s only fair.

Third, the benefits of CBDCs will depend on how technologies evolve.

AI, for instance, could amplify some of the benefits of CBDCs. It could improve financial inclusion by providing rapid, accurate credit scoring based on various data. It could provide personalized support to people with low financial literacy. To be sure, we need to protect personal privacy and data security, and avoid embedded biases so we don’t perpetuate inequality but aim to reduce it. Managed prudently, AI could help.

Another important potential transformation resulting from the work of many of you is the tokenization of financial assets, such as bonds issued on blockchains. This opens another door to CBDC, potentially in wholesale form, to pay for those assets.

So countries should continue exploring CBDCs.

In that spirit, I am delighted to announce the launch of a CBDC Handbook available on the IMF website starting today. The Handbook is intended to collect and share knowledge on CBDCs for policymakers around the world—to help them to sail ahead.

The cross-border payments voyage

To the extent CBDCs are deployed, they must be built to facilitate cross-border payments, which are at present expensive, slow, and available to few. Again, we must start this work today so we don’t have to backpedal tomorrow.

Efficient cross-border payments allow for capital to get more quickly to where it is needed. Small businesses can grow beyond borders, and households can receive needed funds from abroad. While we see encouraging declines in the cost of remittances, they remain above Sustainable Development Goal targets. We must ensure that countries do not get stuck on the wrong side of the digital divide.

We know what to do to make cross-border payments more efficient in the short term: improve what we already have. This is the spirit of the G20 Roadmap to enhance cross-border payments. In fact, I’m happy to announce that the IMF and World Bank will soon publish a common plan to provide capacity development to countries in just this area.

But in the medium term, new cross-border platforms may help. Think of these as next-generation virtual town-squares where central banks, commercial banks, and potentially even households and firms, can gather to exchange CBDCs in wholesale or retail form. Such platforms can even be built to interface with traditional forms of money and manage risks from payments.

These platforms are being actively explored by a range of players.

Banks and fintech companies are at the forefront. They are building infrastructure to pay each other, and to exchange financial assets on common blockchain networks.

The public sector is also pushing the frontier, including with the help of the BIS Innovation Hub. The Monetary Authority of Singapore is particularly active. Its project Guardian explores platforms to exchange digital money and assets. IMF staff will participate in project Guardian as observers to advise on the implications for the international monetary system. Thank you, Ravi Menon, for including us!

As you all know, there are many ships sailing these waters. And that is very good.

But we may be at a point where the public sector needs to offer a little more guidance. Not to crowd out, not to disrupt. But to act as a catalyst, to ensure safety and efficiency—and to counter fragmentation.

What we need in this voyage is a compass.

One way to provide a compass is to establish the desirable properties of cross-border platforms from a policy standpoint. For instance, platforms must allow countries to manage capital flows and retain control over their money supply. Equally important, we need common rules of the game on fighting money laundering and terrorist financing, and on data protection for instance. 

AI could help here as well. AI solutions known as RegTech could reduce costs of compliance. It would be like using priority lanes in airports, skipping over the long queues at security. 

Again, like CBDCs, we don’t need to decide today whether cross-border platforms are desirable. It’s about keeping the option open, building capacity, and setting the design contours to support the integration and stability of the international monetary system. If not, we may actually end up fragmenting it.

No one institution can provide such guidance. We will have to collaborate tightly across international institutions, central banks, and ministries of finance. The IMF can and will play its part.

Conclusion

Let me conclude with the following: We will be in the high seas for some time. But the potential payoff is clear—a more inclusive international financial system that meets our future needs.

So let us not disembark at the first island. Nor turn back. There is value in the voyage itself.

As Marcel Proust once said, “The real voyage of discovery consists not in seeking new landscapes, but in having new eyes.”

That speaks to the strength of the Singapore Fintech Festival, and of all of you gathered here – the strength of many eyes. The power to bring fresh perspectives to problems and challenges old and new. I look forward to continuing this voyage with all of you. Let us sail together.