CBDCs could help reduce settlement cycles and enable better cash flow forecasting for MSMEs: report

Technology for MSMEs: According to RBI, a 2021 Bank for International Settlements (BIS) survey of central banks around the world found that 86% were actively researching the potential of CBDCs, 60% were experimenting with the technology, and 14% were deploying pilot projects.

Technology for MSMEs: According to a Deloitte report Wednesday. A CBDC is essentially legal tender issued by a country’s central bank in digital form as a medium of exchange, store of value, and unit of account. It is akin to fiat currency which is exchangeable on a one-to-one basis with fiat currency. On the other hand, DLT is more commonly referred to as blockchain technology.

“Currently, when the payment request is issued in, say, an export scenario by an MSME for the order she has shipped, the money goes from the importer’s bank account to the central bank in her country, which then goes to the central bank of the MSME promoter and then to their bank account Settlement takes a few days, but if you have a digital currency the payment can be settled instantly This is also very beneficial for MSMEs Monish Shah, Partner, Deloitte India told Financial Express Online.

Digital currency, for example, the digital rupee proposed in the case of India, backed by the Reserve Bank of India (RBI) with instant settlement, would likely improve the overall flow of money for MSMEs by reducing time and the cost of payments and thus improve their solvency without settlement risk or cross-currency settlement risk. “The DLT ecosystem could enable credit profiling and better cash flow forecasting to improve the sector’s efficiency in lending to MSMEs,” says the report titled Central Bank Digital Currencies: Building Block of the Future of Value Transfer.

“Eventually, all government credit schemes for MSMEs could go through the digital rupee. I would be looking at the crystal right now but the way the digital rupee could be rolled out is that RBI would pilot it first with banks for interbank settlement before rolling it out to corporates so they have a digital rupee account and then moving it further to all MSMEs selling to businesses,” Shah added.

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According to RBI, a 2021 survey by the Bank for International Settlements (BIS) of central banks around the world found that 86% were actively researching the potential of CBDCs, 60% were experimenting with the technology, and 14% were deploying a pilot. projects.

The adoption of the CBDC has been justified for reasons such as firstly, central banks, faced with the decreasing use of paper money, seek to popularize a more acceptable form of electronic money; second, jurisdictions with high use of physical cash looking to make issuance more efficient such as Denmark, Germany, Japan or even the United States; and third, central banks seek to meet the public’s need for digital currencies, manifested in the growing use of private virtual currencies, and thereby avoid the most damaging consequences of these private currencies, RBI said.

Moreover, given India’s “demographic dividend” and “data dividend”, Shah said, the DLT-based digital rupee is likely to have a huge impact on the future of digital payments.

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