The world’s central banks understand that the future of money is digital. As payments shift online, the use of cash declines and the fortunes of crypto assets rise and fall, central bankers realize that their ability to command the use of money in their economies could weaken. This could also contribute to cement the financial exclusion of un- and underbanked citizens. To try and forestall such developments, central banks in all the world’s major economies and most of its lesser ones are exploring the creation of digital currencies. A handful of emerging economies have already launched their own.

The widespread introduction of central bank digital currencies (CBDCs), especially in the world’s major economies, is not imminent. But the groundwork being conducted in this area is detailed and in-depth. Therefore, many central banks will be ready to launch when their governments deem the circumstances to be right. Before that time comes, central banks have choices to make about the design of their CBDC systems, particularly those earmarked for retail use.

According to the Atlantic Council, as of June 2023, 11 countries or their currency unions had fully launched digital currencies. At the same time, 21 had embarked on pilots, 32 had them under development and another 46 were at the early stages of researching them. Some initiatives are exclusively for retail CBDCs (including the 11 already launched), some for exclusively wholesale ones. Several large economies such as China, the US, and the Eurozone are exploring the launch of both.

Baker McKenzie spoke with Marion Laboure, senior strategist at Deutsche Bank Research and co-author of a recent white paper on digital currencies, and Ashlin Perumall, a partner in Baker McKenzie’s Johannesburg office, to understand what some of the design options are and how the choices made may have an impact on financial inclusion and the role of private sector banks in this new payments landscape.

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Ashlin Perumall is a partner in Baker McKenzie's corporate/M&A and IPTech practice groups in Johannesburg. Ashlin specialises in technology-focused matters, including M&A and venture capital transactions, and the commercial aspects of intellectual property (IP). His practice extends to advising on emerging technology business models and establishing legal, compliance or diligence assessment frameworks for novel targets in various industries, where a high degree of technical expertise is required. These include acting as key advisor to clients entering the fintech (including paytech, open banking, digital banking and financial APIs), blockchain and distributed ledger tech, AI/Machine Learning as a Service (MLaaS) in the auditing industry and digital asset sector. He has over a decade of experience is assessing emerging technology and novel IP acquisition targets. Ashlin has also worked in the Firm's London office and served as a Fellow to the World Economic Forum's Centre for the Fourth Industrial Revolution (4IR) in San Francisco as part of our partnership with the forum to address global, regional and industry policy issues in respect of 4IR technologies, conducting regulatory and policy research, and paper writing as part of the Digital Currency Governance Consortium (DCGC). Practice Focus Ashlin is routinely called to advise on transactional and advisory work in the technology, media and telecommunication sector, with a focus on the transfer or acquisition of businesses or assets in intellectual property and technology-driven companies. He has over a decade of experience in assessing novel technology and software acquisition targets and has played a role in some of South Africa's largest technology transactions.