Cbdcs: A Gateway To Finance For Msmes: Paving A Practical Path To Prosperity

Central bank digital currencies (CBDCs) pave the way for the digitization of the monetarysystem and thus form the prerequisite for enabling simple and people-centric digital lending.There are 4 countries which adopted CBDCs, 36 with pilot projects and over 70 doing researchand development (CBDC Tracker 2024). Because the benefits of CBDCs extend beyond thefinancial sector, CBDC costs and benefits go beyond transmission of monetary policy. CBDCsmust be examined in terms of the impact on the whole economy which ultimately is impactedby the depth and breadth of capital markets. Accessibility of digital assets for micro, small andmedium enterprises (MSMEs) is a key part of the process in evolving CBDCs supporting a moreequitable prosperity as AI widens divides (Fung 2023). MSMEs account for most of global employment. Unfortunately, insufficient access to financeby MSMEs was worsened by the Covid pandemic. Digital access to microcredit through creditscoring based on the digital footprint, pioneered by the publicly listed enterprise Micro Connectin Macau, is an effective and efficient way to facilitate MSMEs access to international finance.To expand beyond Macau, requires two conditions: digital public infrastructure that supportsMSMEs and a legal framework with national and cross border recognition. In effect, access toloans for MSMEs can be simplified and expanded if digital assets can be used to secure loans.Digital asset registries, similar to land title registries, are an initial step in establishing marketprices for digital assets. Just as land title registries have evolved over time, digital asset registriesmust also develop to meet the financing needs of MSMEs. The Puerto Rico Mercantile BankInternational is taking first steps in this direction.We recommend the G7 initiate and oversee a network of CBDC/Digital Asset Registry (DAR)Sandbox’s coordinated and promoted at an international level to strengthen MSMEs. Thiswill connect research projects on CBDCs, monetary policy transmission and MSME financingand digital asset registries. Registries of digital assets should be set up and recognized at theinternational level.The expansion of practical research can enable countries, especially developing countries, tolaunch CBDC/DAR Sandbox’s with the multilateral development banks to learn from eachother and work closely with BIS and the IMF.