Just last week, I had the honor of participating in an official mission arranged by the Asian Development Bank to the Kingdom of Bhutan 🇧🇹. The primary aim of this mission was to evaluate the potential benefits, challenges and use cases of introducing a central bank digital currency (CBDC) in the Kingdom of Bhutan. This fascinating mission extended over several days and included a series of productive meetings with stakeholders, as well as enlightening workshops with the Royal Monetary Authority of Bhutan. These workshops covered a thorough exploration of both retail and wholesale CBDC concepts, fostering the identification and in-depth discussion of possible use cases that could usher Bhutan into a new era of financial innovation and progress.
What are the main insights I gained?
1️⃣ Understanding the culture, mindset of the population, monetary systems, and political context is crucial in shaping the CBDC’s design. This underscores the vital role of on-site missions. In Bhutan’s context, I encountered a society with a deep-rooted preference for cash transactions (not for privacy reasons). Simultaneously, it displayed a remarkable willingness to embrace innovative solutions.
2️⃣ The successful adoption of CBDCs heavily relies on the widespread acceptance of digital payment methods. The proliferation of CBDCs depends on the presence of a broad network of merchants who embrace CBDCs and active participation of banking institutions in its distribution. Ultimately, the key lies in creating network effects.
3️⃣ It’s crucial to recognize that CBDCs alone cannot solve underlying infrastructure challenges, such as connectivity issues, limited smartphone access, or insufficient disposable income. While they can certainly help address related problems, like improving financial inclusion and optimizing payment systems, CBDCs are not a universal panacea.
4️⃣ Education plays a critical role in promoting CBDC adoption. Comprehensive programs that provide a general understanding of CBDCs and their potential applications are essential. This task is particularly daunting in countries with predominantly urban populations, like Bhutan.
5️⃣ Considering that implementing CBDCs involves significant costs and resource allocation, it’s vital to focus on a compelling use case. I see promising applications for CBDCs in developing and emerging economies, including Bhutan. However, if a central bank cannot identify such compelling use cases, it should exercise caution in advancing a CBDC project.
In summary, my experience in Bhutan was an extraordinary adventure. It provided valuable insights into this unique country, where I had the privilege of engaging with the incredibly kind, welcoming, and open-minded people of Bhutan. Moreover, working on a concrete CBDC project on-site added depth and significance to this enriching experience.