Historically, banks have been wary of digital currencies. As central banks begin to explore digital currencies, Naa Wilson, Head of Cross Border Payments at Standard Bank Group, says banks and treasurers who fail to get on board risk missing out.
For years, corporate treasuries have been largely operational. The shift to digitization, with the increasing use of digital tools such as AI and machine learning APIs, allows treasuries to take a more strategic role, providing efficiencies and insights they need to be more proactive.
Digital currencies, including those issued by central banks, will play an important role in this transition. Inherently more efficient than physical currencies, they offer treasurers tools they need to achieve their aims of improving efficiency and cutting costs.
Some financial institutions have been reluctant to venture into digital currencies, largely due to risks present in the lack of effective regulation.
But the rise and evolution of fintech has forced us to think differently. We have learned the value of stepping out of our comfort zones and exploring opportunities that innovation offers as well as being poised to utilize new tools and platforms that enable us to do our jobs better.
Changing the game
The coming introduction of digital currencies by central banks changes the game. As more central banks accept digital currencies are here to stay, they will look to benefit from the opportunities these currencies offer.
The presence of central banks in the field lends greater legitimacy. As they take more of a leading role in creating a reliable regulatory framework, they open the door for financial institutions that operate under the umbrella of regulation to do business in this space with confidence.
These new regulatory frameworks must not be overly restrictive. Rather, they should provide the necessary guide rails for an increasingly decentralized model to operate and flourish, without compromising safety and security.
The growth of central bank digital currencies offers opportunity for banks and clients alike. The seamless, real-time transactions offered in the digital sphere bring with them significant cost reductions – saving banks money and allowing them to pass those savings on to clients through lower fees.
Furthermore, the data insights offered by digital currencies, for example around transactional behaviour, are virtually unlimited. Mining the data enables digital treasurers to think more strategically, increasing value for banks and clients.
Is there a risk of getting left behind?
Institutions that choose not to participate in digital currencies are at risk of being left behind. Although digital currencies have been considered a risk, once they have central bank backing, they are as good as the physical money we have been using for centuries.
The evolving financial landscape, with increasing interconnectivity across countries and continents, will force people to participate. And the COVID pandemic escalated the pace of change.
At Standard Bank, we are continually investigating opportunities these innovations will bring. Blockchain is among the technologies we are exploring, which is giving us insights into ways to better serve clients and bring innovative products to market.
We are also playing an active role in shaping the regulatory framework in which these new technologies will operate. All this leaves us ideally placed to take full advantages of the opportunities as they grow.