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The Future of Money Is Digital, But Is It Bitcoin?

At the same time, 75% of Indonesians have smartphones, so this presents a much better strategy to promote financial inclusion than the traditional banking system.


Digitalizing the fiscal lever


BI’s statement last week following its Board of Governor’s meeting showed a very different monetary policy from other central banks.


The central bank left official interest rates on hold at 3.5% because they were worried about the impact on the rupiah: cutting rates would weaken the rupiah on global FX markets, undermine confidence in the Indonesian economy, and encourage foreigners to take their money out of the country.


The exchange rate decision was one driven entirely by external considerations. Domestically, BI  wants to stimulate the economy and help spur the recovery from the pandemic, and its core policy for doing that is the introduction of a digital currency, and also a mandate to reduce domestic interest rates on credit cards.


Put together, these measures will make local money cheaper, but the digital currency move will make money accessible to more people without bank accounts, and help these funds move at a greater velocity throughout the economy. In its announcement, the central bank noted that digital payments had increased by 60% in the last year, partly driven by the pandemic.


Fintechs made consumers ready


It's not a central bank example but think of the phenomena of Grab, which began life as a ride-hailing app in Singapore in 2012 and has now spread to 30 or so countries in the region.


Grab is in the headlines for its upcoming USD 40 billion NASDAQ stock market float, but for most people in Southeast Asia, it is better known as the most common ride-hailing service. It has expanded into a “super-app” to pay for food delivery but also with a wider use as a digital wallet.


Grab, and also Gojek in Indonesia, have morphed into digital payment eco-systems which stand alongside the traditional banking system, and which are also finding interest from inside the system.


In 2019, Thailand’s Kasikorn Bank partnered with Grab and launched an e-wallet for unbanked customers called GrabPay by KBank.


Indonesia-based Bank Jago became the country’s fourth most valuable listed bank last year after investments from Gojek, and is planning on partnering with Gojek to embed its financial services on the company’s platform.


Asia is rapidly becoming the regional leader in the development of digital currencies. And this is occurring across the financial services spectrum: from developing economies driving financial inclusion to sophisticated financial centers looking to become global hubs.


In Indonesia, the central bank Bank Indonesia (BI) last week announced it would issue a central bank digital currency. The reasons include financial inclusion and so that its monetary policy could be more effectively transmitted through the economy.


Indonesia is a huge country with more than 270 million people, and yet the World Bank estimates only 40% of adults actually have a physical bank account.


It was with these services in mind that BI announced its plans to launch a digital currency, trying both to head off the uptake of cryptocurrencies that exist outside the system and also looking for new strategies for financial inclusion.


Moving up the value chain


Not far away geographically, but at the other end of the spectrum in terms of sophistication, is the Digital Exchange launched in December last year by leading Singapore bank DBS.


Backed by the Singapore Exchange, the DDEx was created to facilitate trading between four cryptocurrencies including Bitcoin, XRP, Ether, and Bitcoin Cash, and four fiat currencies, such as the HKD, JPY, USD, and SGD.


It leverages blockchain technology to provide an ecosystem for fundraising through asset tokenization and secondary trading of digital assets.


This week, DBS issued and priced an SGD 15 million bond which is now tradeable on the DDEx, leading the way with a proof of concept which could pave the way for something unheard of a short time ago: corporates issuing debt in cryptocurrencies.


In this move, Singapore is more looking to steal a march on other financial centers and establish itself as a digital currency trading hub and a center for financial innovation.


That is almost the polar opposite of driving financial inclusion, but both initiatives have one thing in common: money is going digital and there’s no way of stopping it.