Central banks around the world are facing unprecedented challenges overseeing the rise of new payments business models, platforms, products, and providers, alongside the increased adoption of digital payments and services among the population in the wake of COVID-19 crisis. Yet, an increasing number of central bank policymakers and supervisors are embracing the promise of new financial technologies for their own processes and financial inclusion initiatives.
Recently, Agustín Carstens, General Manager of the Bank for International Settlements (BIS) commented on the current sea change in central banking: “The crisis only strengthens the case for supervisors to embrace technology in order to keep up with the digital transformation that the industry is experiencing.” This paradigm shift in central banking is the raison d’être for EMTECH and its mission to modernize central banks around the globe in order to close financial inclusion gaps and improve the resilience of the financial market infrastructure.
EMTECH is the fintech of Modern Central Banking, helping regulators leapfrog existing regulatory frameworks and systems, and to adopt an innovation mindset as well as an innovation toolset, says D.R. Maurice, Chief Risk & Policy Officer. A Modern Central Bank not only effectively regulates fintech, but also uses fintech to address key challenges including financial inclusion, SME lending, KYC/AML, and regional trade integration. A Modern Central Bank combines policy and technology to be more effective at their mandate of stability, inclusion, and consumer protection.
A one-size-fits-all solution is not viable for central banks in emerging markets, with their local markets and unique needs. As such, EMTECH is a specialized fintech targeting central banks as primary customer segments, in the hope of bridging gaps between regulatory and technical innovation to address major challenges. That is why the key principles underlying our “Modern Central Bank Platform” are collaboration and innovation. It is this vision that has built EMTECH’s reputation as a trusted and reliable fintech partner for a number of central banks in emerging markets, from the Caribbean to Africa.
The Future is Ecosystems vs Silos
The future of modern and inclusive financial market infrastructures is a digital network with more trust and fewer silos.
The current IT operating model deployed by most central banks is centralised, costly (CAPEX model), complex, siloed, and for many, nearing the end of its lifecycle. To address this, central banks striving to be both effective regulators of financial markets and proponents of new fintech solutions are assessing solutions such as the Modern Central Bank Sandbox™ platform. EMTECH launched this new platform in partnership with Microsoft as a solution for central banks looking to streamline regulatory reviews, collaborate with innovators on emerging technology, or safely test their central bank digital currencies (CBDC).
We believe every central bank advocating and aiming to introduce a CBDC should have a regulatory and innovation sandbox. The Modern Central Bank Sandbox is not only about asking fintechs and innovators to obtain regulatory approval, but is also designed to be a robust mechanism for regulators to introduce innovations such as CBDCs to the market in a controlled manner.
The Modern Central Bank Sandbox is designed to empower central banks to overcome systemic challenges that currently exist within financial services, as well as the obstacles and high costs involved in making cross-border payments. We support central bank efforts to innovate with confidence, providing prudent oversight while accelerating time to market for new financial products.
The solution is hosted by Microsoft’s Azure, a leading cloud product. Commenting on the partnership, Chris Lwanga, Principal Director at Microsoft said, “We look forward to helping EMTECH on its global mission to enable accelerated central bank digital innovation, harnessed on Microsoft’s highly secure, compliant and scalable Azure platform.”
Most recently, the Bank of Ghana announced its collaboration with EMTECH to deploy the Modern Central Bank Sandbox. The partnership will see Ghana’s central bank delivering on its commitment to “evolve an enabling and inclusive regulatory environment that promotes fintechs and supports innovation,” while also underscoring its commitment to addressing the financial inclusion needs of Ghanaians.
Kwame Oppong, the Head of Fintech and Innovation at the Bank of Ghana, highlighted: “Effectively, the regulatory and innovation sandbox will provide a forum for financial sector innovators to interact with the sector regulator and provide valuable insight for the central bank to evolve effective regulation. In this regard, the Bank and the innovator are able to assess the usefulness, viability and safety of innovations through shared understanding of their respective interests.”
The Bank of Ghana has announced participation in its sandbox for both regulated and unregulated firms and institutions, with a particular focus on products and services involving blockchain, remittances, crowdfunding, e-KYC (electronic know your customer), regtech and suptech, digital banking, women’s financial inclusion, and innovative merchant payment solutions for micro, small and medium-sized enterprises (MSMEs).
“The sandbox is of strategic importance in driving financial inclusion through innovative digital financial services by aiming to encourage innovators to experiment with new ideas, formalise their business and help to reduce the cost and time-to-market,” Oppong added.
Cross-Border Payments Harmonisation
Built into the EMTECH Modern Central Bank Sandbox model is the recognition that fintech solutions are growing inherently cross-border by design, given increasing global migration, cultural integration and growing cross-border trade. A regional sandbox strategy has the power to harmonise, not override, member countries’ regulatory requirements. Furthermore, a regional regulatory review process fosters modernization by attracting new solutions to countries that might not attract innovative tech on their own.
In parallel to EMTECH's work with the Central Bank of Bahamas on testing the cross-border payment models for the recent launch of its Sand Dollar digital currency, we are dedicated to further spearheading the Caribbean region’s efforts to enhance financial inclusion across all demographics and sectors. EMTECH recently joined forces with WiPay Caribbean, the largest online payments network in the Caribbean, to develop a pilot CBDC called “WiCoin” that will integrate with WiPay's regional network for distribution by participating central banks.
The WiCoin project stands on the shoulders of the region’s progressive central banks that have emerged as global leaders in the deployment of CBDCs. Aldwyn Wayne, CEO of WiPay Caribbean commented, “We have very forward-thinking Central Banks within the region. Both the Central Banks of Jamaica and Barbados have already created regulatory sandboxes for testing these types of solutions. Once we have completed our development with EMTECH we will present the solution for acceptance into the sandbox.” Wayne says that WiPay will play a critical role in providing central banks with a distribution network for the quick adoption of the technology, with CBDCs set to effectively revolutionize payments across the Caribbean for all segments of society.
EMTECH via the partnership with WiPay is paving the way to prove a model that not only digitizes central banks with modern regulatory and currency platforms, but also enables the paradigm shift where CBDCs, stablecoins, and cryptocurrencies come together to achieve the goals of financial inclusion, integration, and ultimately the formation of a regional settlement network. This thoughtful approach holistically unites the policymakers, regulators, and fintech innovators that are integral to creating a truly resilient financial infrastructure, in turn enabling broad acceptance of digital currencies on a regional cross-border basis. We aim to cement the regional Caribbean fintech ecosystem as a pioneering model for the world.
The digitisation of sovereign currencies with blockchain and distributed ledger technology (DLT) is unlocking efficiencies in governance, payments, compliance, and financial inclusion. In the future, EMTECH’s solutions will serve to assist central banks around the world in the effective and accountable oversight they have the mandate for. Further, EMTECH’s solutions can be leveraged with strong policies to have fast, tangible and positive impact on the unbanked, payments and regional trade.
The Argument for DLT
Indeed, a Central Bank Digital Cash infrastructure can directly fill the inclusion and equality gaps left by the current banking system. The EMTECH team has been carefully tracking the central banking market over the last 18 months and has found that while CBDCs are highly popular as a topic, many central banks are struggling to keep pace with emerging innovations. Some are facing roadblocks in their efforts to go digital. And some are asking whether blockchain is really needed to underpin a CBDC.
A recent system disruption incident at the US Federal Reserve served as an unfortunate but useful reminder of the utility of blockchain in payment systems. At the end of February, an operational error at the Fed resulted in a temporary shutdown of the system that operates services such as Fedcash and the Fedwire Funds money transfer services. The crash affected several business lines and impacted customers’ ability to transfer funds in both large and small sums. Conversely, with the implementation of a decentralised Digital Cash infrastructure, an ecosystem-wide effect could be avoided. EMTECH believes a blockchain-based cash system could be a more inclusive, resilient and secure option for central banks to also offer more broadly to everyone.
Last month, it was Eddie Yue, Chief Executive of the Hong Kong Monetary Authority (HKMA), who confirmed that central banks are actively looking to apply new technologies to address long-standing pain points in banking. Along with the central banks of China, Thailand, and the United Arab Emirates, the HKMA has now initiated the m-CBDC Bridge project for cross-border payments to explore the potential of using blockchain technology to facilitate real-time cross-border payments. If successful, the solution could greatly reduce costs and enhance transparency for users. “CBDCs have a range of promising applications,” said Yue, “and together with our partner central banks, we want to be at the forefront of this development.”
Modern Central Bank solutions must be built on robust open platforms and establish trusted distributed ledgers with embedded governance and interoperability models. EMTECH believes blockchain/DLT and artificial intelligence can be powerful tools for Real-Time Governance and Real-Time Risk Monitoring, even for the most conservative institution. Strategically it is critical for the central banks to accelerate understanding and adoption of new technologies to maintain stability in today’s quickly evolving financial market infrastructure. And we are not alone. Central banks in emerging markets and developing economies (EMDEs) are at the forefront of a ‘transformation versus disruption’ strategy, taking steps to introduce and integrate new technology to be more effective in fulfilling their mandates.
The Benefits of Digital for Emerging Economies
The results of BIS’s most recent survey of central banks’ engagement in CBDC also proves that EMDEs show both stronger motivations for and progress in issuing a CBDC than advanced economies. The study of more than 60 central banks reported that the stronger perceived drive directly translates into EMDEs being more likely to have advanced to a pilot or implementation phase. A reported 88 percent of central banks in advanced stages of CBDC development are EMDEs, with financial inclusion being the main motivation and top priority for their CBDC development via focus on efficiency of domestic and cross-border payments.
Emerging countries stand to benefit the most from the shift from “electronic money” to “digital currency,” a transformation that offers central banks an opportunity to design a financial market that offers inclusion and stability catered to their local and regional dynamics and priorities. At the core of EMTECH is the aim to move the needle from concept to real-life applications, with the design and deployment of new financial market infrastructure solutions built for and with emerging markets.
EMTECH helps central banks leaders to modernize their institutions by promoting and facilitating multi-stakeholder collaboration and innovation to operationalize monetary and economic policy.
The EMTECH leadership and founding team includes:
Carmelle Cadet, former IBM Corporation Business Executive with experience in enterprise software, blockchain and global fintech innovation;
D. R. Maurice, a former finance industry regulator with an extensive portfolio of risk management duties, and who served at the Federal Reserve, the U.S Treasury Department, and as an advisor to central banks in emerging and transitional markets;
Nikola Toshev, Fintech Software veteran, who brings extensive blockchain expertise, and has built high frequency trading platforms; and,
Nita Saint-Hilaire, who brings over 15 years of experience in Enterprise IT Product Management and Marketing for Fortune 100 firms in the financial services and B2B industries more broadly.
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