The rapid adoption of digital solutions during the Covid-19 pandemic has illustrated some of the economic and social wellbeing gains that could be realised in moving to a digitised economy. However, many countries do not yet have the foundations in place to make that digital leap.

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Banks across the world have reported a significant increase in the adoption of digital solutions over the past 14 months, as consumer and corporate behaviour changed radically in the face of a global pandemic. But this mass shift has also laid bare some of the challenges that many nations still face in reaping the full benefits of digitalisation.

On April 26, as part of the Singapore Fintech Festival programme, the Monetary Authority of Singapore (MAS) brought together representatives from the Autoriti Monetari Brunei Darussalam (AMBD), National Bank of Cambodia (NBC), Bank of Ghana (BoG) and Central Bank of Kenya (CBK) to discuss the progress each country has made in becoming digital economies. 

The webinar coincided with the publication of a whitepaper by MAS and the other four central banks entitled “Foundational digital infrastructure for inclusive digital economies”, which addresses the foundational digital infrastructure challenges needed to promote an inclusive digital economy and seamless cross-border transactions.

The whitepaper identified four critical pillars to underpin what it calls “effective foundational digital infrastructures”: digital identity; authorisation and consent; payments interoperability; and data exchange.

Digital identity establishes trust between parties and enables access to public and private digital services. All five countries have already begun rolling out national e-identity (eID) schemes, from CamDigiKey in Cambodia to Kenya’s Huduma Namba. Authorisation and consent are also critical for fostering public confidence that digital transactions are safe and secure, and many countries have implemented specific legislation, such as Singapore’s Personal Data Protection Act, while others are exploring the need for stronger regulatory frameworks.

One area of focus is payment interoperability, which is needed to facilitate seamless payments. “We need common payment rails or networks to enable interoperability across payment solutions for data exchange,” said Ravi Menon, managing director of MAS.

The mass shift [in digital uptake] has also laid bare some of the challenges that many nations still face

While seen as a significant challenge, the five central banks included in the report are driving forward interoperability. For example, as part of its Digital Payment Roadmap 2019-2025, AMBD is developing a digital payment hub to promote interoperability in Brunei. “Through the hub, digital payments can be managed more efficiently,” said AMBD’s managing director Hajah Rokiah binti Haji Badar. “And in the long run, we hope that this can serve as a conduit for the efficient payment system integration in the Asean region, consistent with the goals set forth in the Asean Economic Community Blueprint 2020.”

Her remarks are consistent with the overarching thrust of the report: the four digital pillars will also need to work on a cross-border basis, especially when it comes to payments. And just three days after the webinar, MAS and Bank of Thailand announced that they had integrated their real-time payment systems, PayNow and PromptPay, to allow international fund transfers between the two countries within minutes.

MAS is also collaborating with the Bank for International Settlements Innovation Hub in Singapore to explore opportunities to improve cross-border payments by connecting payment systems to digital identities across borders, according to Mr Menon.

Making this connection between payment systems and national eIDs is the next big hurdle. For example, NBC is currently trying to connect its Bakong System, which is an inter-bank mobile payment platform based on distributed ledger technology (DLT), to a commercial bank in Malaysia. “The technology part is quite easy,” said Serey Chea, NBC’s assistant governor. “The problem that arose is the ID itself, because without a common digital identity platform, the user has to manually enter data for every transaction, which is inefficient, time consuming and can be costly as well. So that cross-border collaboration is important, probably as important as what we’re doing domestically.”

Unsurprisingly, the central bankers on the panel approached the topic of digital currencies and DLT with caution. “Certainly blockchain has shown some promise and everyone is seriously exploring [this technology] to understand the implications,” said Kwame Oppong, head of fintech and innovation, BoG. “Ghana has also been exploring a central bank digital currency, but work still needs to be done domestically and in the cross-border space to [address specific concerns].”

“The question we should ask ourselves is what problem are they proposing to solve? [Digital currencies and DLT] could offer a better solution, but there may also be risks that we need to look at and mitigate,” said Dr Patrick Njoroge, CBK’s governor. “Therefore, I don't think they should be seen as the solution to all our problems.”

Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight

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