This year Chile published its second report exploring a potential central bank digital currency (CBDC). The country has the highest rate of financial inclusion in the region at 85-87% with a significant proportion of digital payments. As a result the Banco Central Chile does not see a current need for a CBDC (or MDBC as it’s called locally). However, it wants to prepare in case the need arises in the medium term.
Its first report primarily covered desktop research, whereas the second relates to public engagement. This includes a public survey with 450 responses and eight round table working groups with payment industry participants.
Chilean CBDC motivations
Sixty-three percent of survey respondents thought that a CBDC could catalyze greater innovation. Regarding motivations, offering an alternative to current electronic payments was seen as the number one driver, given current payment mechanisms have some frictions, although the details were not shared. There’s also a desire to encourage greater competition.
In the survey, the second and third-ranked drivers were lowering costs and enhancing efficiency.
Other motivations from the consultations included:
- greater efficiency in cross border remittances, but not near term
- programmable payments using smart contracts
- public money in a digital format
- settling payments in the digital economy.
However, some of the firms in the payments ecosystems noted that these issues could be addressed without a CBDC.
Consumer acceptance of a potential CBDC is seen as a major challenge. Chile has two debit or credit cards per capita. Electronic wallets are widely available, and the state-owned Banco Estado provides 14.5 million basic Cuenta RUT accounts, according to the IMF. That’s equivalent to around 95% of the adult population (total population 19.6m).
On the flip side, if Chile successfully issued a CBDC, it’s concerned about attracting away bank deposits and the knock on effect on credit.
Regarding next steps, the central bank plans to start with some proofs of concept (PoC) on its own. That’s despite its desire to operate a two tier system with banks and payment providers performing distribution. At this stage the PoCs will focus on infrastructure, evaluating gaps and building internal skillsets, rather than specific use cases. The central bank says it has a technology neutral approach.
CBDC in another South American economy – Brazil
Meanwhile, all eyes are on Brazil, which is rapidly advancing its DREX CBDC. In 2020, Brazil launched the Pix payment system, which addresses financial inclusion with digital payments. Rather than basic payments, DREX targets open finance, using tokenization to expand financial inclusion relating to savings and investments. With a population more than ten times Chile’s, the central bank’s speed of movement is impressive.
