In my last essay, I told you about my recent meeting at Brazil’s Ministry of Finance.
I also told you how Brazil is hosting this year’s G20 conference in Rio de Janeiro…
And taking a leadership role on global digital payment system development.
On the ground at Brazil’s Ministry of Finance
These systems are a necessary step to the proliferation of central bank digital currencies (CBDCs) around the world…
And their ability to transact with each other. That would mean countries could also share information with each other through programmable currencies.
Not only could your private information be at risk in your country through the use of CBDCs… But across borders, too, if you travel.
Today, I want to address the steps already in progress and what you can do about them.
Digital Payment Systems in the World:
India and SWIFT
It’s not just Brazil. Another BRICS nation, India, has also been developing digital payment systems.
India’s most extensive system is the Unified Payments Interface (UPI). It has become attractive around the world for enabling seamless cross-border payment transactions.
Adoption unfolded quickly.
During the February 2023 G20 digital economy working group meeting in Lucknow, Union Minister Ashwini Vaishnaw spoke about UPI.
He said India had signed memoranda of understanding with 13 countries wanting to adopt the UPI interface for digital payments.
At the time, Singapore was the only country that had adopted India’s platform.
Now, overseas markets accepting UPI payments include Singapore, Malaysia, the United Arab Emirates, France, Nepal, the U.K., Mauritius, and Sri Lanka.
In 2020, the G20 leaders set a 2027 target date for enhancing digital cross-border payments.
SWIFT has an existing platform called Swift Go, which it introduced in 2021. This platform enables digital cross-border payments across institutional accounts.
The updated platform would enable financial institutions, consumers, and small- to medium-sized business customers to send fast, secure, cross-border transactions from their bank accounts via digital banking portals.
With CBDCs gaining worldwide momentum, Swift is also testing how institutions can use their Swift connection to link with the blockchain networks emerging worldwide.
On March 25, Swift announced the results of the second testing phase on its CBDC interlinking technology.
The study covered 38 institutions including central and commercial banks. Testing was designed to see how these entities can operate together using their existing financial ecosystems.
The tests concluded that Swift’s methodology could:
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Simplify and speed up trade flows,
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Unlock growth in tokenized securities markets,
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And enable efficient foreign exchange settlement.
Swift’s platform would allow cross-border transfers.
It would also connect CBDCs on different networks with each other. And it would connect them with respective fiat currencies.
These are signs of growing global acceptance and adoption of digital payment platforms. These platforms are a necessary step toward global CBDC transactions.
And there’s more.
The Growing List of Countries in CBDC Development Stages
Regular readers know I’ve been following the rise of CBDCs here at Inside Wall Street and our premium services.
We have written that it’s only a matter of time, perhaps a few years, before digital platforms and CBDCs become the norm for payments in the U.S. and worldwide.
The number of countries developing digital payment systems and CBDCs is growing.
There are now 134 countries, representing 98% of global GDP, in some phase of CBDC development. In May 2020, that number was only 35.
Plus, 68 countries are in the advanced exploration phase – development, pilot, or launch.
Of these, 19 of the G20 countries are in advanced stages of CBDC development. Three countries – the Bahamas, Jamaica, and Nigeria – have fully launched CBDCs.
In addition, there are 36 CBDC pilot programs. That includes one for the digital euro.
The European Central Bank entered its preparation phase and is conducting tests on digital euro transactions. The digital euro preparation stage ends in 2025.
Other nations in the pilot stage include Brazil, Japan, India, Australia, South Korea, South Africa, Russia, and Turkey.
However, the U.S. progress on creating a retail CBDC has been slower lately.
Its FedNow payments system for banks and corporations went live on July 20, 2023.
Recall that FedNow is a cloud-based, real-time gross-settlement system. It allows 9,000 U.S. banks and payment service providers to facilitate fast payments nationwide.
Since then, FedNow has reached some milestones. The Central Banking Awards 2024 cited the Fed’s FedNow Service in the Payments and Market Infrastructure Development category for its innovative infrastructure.
In March 2024, Federal Reserve Financial Services introduced the new FedNow User Group. The group promotes greater collaboration among the 607 financial institutions and service providers on the FedNow Service network.
So why do I say progress has been slower? Because there is a widening gap in CBDC development between the U.S. and other G7 banks. That includes the Bank of Japan.
Last month, the Bank of Japan announced that it launched a CBDC API Sandbox. (An API Sandbox is a way to virtually test applications and simulations.)
This study involves end-to-end user test cases. It follows from last year’s study on the creation of a digital yen.
I have been probing my contacts at the Fed about this. I have gleaned that the reason is not a lack of will but a focus on the more pressing matters of inflation and monetary policy. I will tell you more when I discover more.
What I can tell you now is this.
Brazil is leading conversations about a global digital platform at the G20. Such a platform is the technological precursor for individuals to use global CBDCs. The G20 conference will be ground zero for those discussions.
Nomi with Dr. Uebel, a PhD professor of International Economics (left), and Dr. Duarte, a senior macroeconomist at Brazil’s Ministry of Finance (right)
G20 Push for Global Digital Payment Systems
The G20 nations account for more than 80% of global gross domestic product, 75% of trade, and 67% of the worldwide population.
Through its payments working group, the G20 set a 2027 target for payment modernization for central banks and multilateral institutions.
India and Brazil are leading the charge for emerging markets nations in digital financial infrastructure and networks.
Brazil’s Pix and India’s UPI are examples of digital payments ecosystems that are increasing digital and financial connectivity. (I wrote about Pix last week. Catch up here.)
The G20 conference will showcase these digital payment models to the rest of the world. And it will use them to craft a global digital payment platform.
Meanwhile, you can use these global developments to your advantage.
One way to do that is by investing in currency assets that aren’t subject to central bank or government purview. Gold and bitcoin are two such assets.
The other option is to invest in the BlackRock Future Financial and Technology ETF (BPAY).
This exchange-traded fund launched in August 2022. It captures growth in the global financial and digital payments space.
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins