2023-Public-Sector-Perspectives

One key objective is to increase internet penetration: 2.7 billion people — or one-third of the world’s population — remain unconnected to the internet in 2022, according to the International Telecommunication Union (ITU), the United Nations agency for information and communication technologies. “The COVID-19 pandemic gave us a big connectivity boost, but we need to keep the momentum going to ensure that everyone, everywhere can benefit from digital technologies and services,” notes ITU Secretary-General Houlin Zhao. 2 Globally, the number of internet users grew by 7% over the past year, but growth is unevenly distributed across regions. Areas with low internet penetration have achieved the fastest growth — following a typical diffusion pattern for new and emerging technologies — but the gap between regions remains striking. In Africa, only 40% of the population is online compared to 80% in the Americas, 70% in the Arab States and 64% in Asia. Europe remains the most connected region globally, with 89% of its population online. 3 According to the ITU, digital technologies can contribute significantly to the fulfilment of the UN SDGs. 4 Below we highlight the SDGs most readily addressed via innovation, as identified by the ITU, and provide some examples of the role that emerging technologies can play in each instance. • SDG 1: No poverty. More than 2 billion people in the world do not have bank accounts. 5 Access to digital financial services has been proven to help lift people out of poverty. One innovation with potentially important implications is Central Bank Digital Currencies (CBDCs), which are being considered by as many as 90% of the world’s central banks and regulators. 6 CBDCs have parity of value with an established currency, are fully backed by the relevant central bank, have low costs and offer finality of settlement. They offer a way to advance financial inclusion and address poverty and hunger — key SDG goals — by reaching a wider range of people with grants, microfinancing and other financial initiatives. In developing and high cash economies, the introduction of CBDCs often has the explicit objective of driving financial inclusion. 7 CBDCs remain at an early stage — just 12 markets have launched CBDCs and most of these are limited in scale or a pilot. CBDCs typically leverage a combination of distributed ledger or cryptographic technologies to support the core platform, application programming interfaces (APIs) to enable banks and businesses to connect, and smart devices and wearables for individuals to access their wallet, typically by downloading an app. For CBDCs to become meaningful, they have to address the challenges created by the use of cash (such as lack of data and traceability, risk, opportunity for fraud, etc.) while offering greater flexibility as a ‘digital cash’ alternative. Distribution to an extended population, including the unbanked, requires identification: maintaining an acceptable level of checks and validations in line with current KYC processes is challenging. Traceability of payments and ensuring the right money gets to the right person requires data to be embedded in the transaction. Central banks must balance transparency against privacy during the design process; the use of tokenized (anonymous) wallet identifiers makes achieving this balance harder still. While the prevalence of mobile phones ensures straightforward access, the ‘last mile challenge’ may still exist, for example in cases where multiple users access the same phone. One possible solution is a system of login/passwords on the app. For CBDCs to be compelling, they need to achieve broad adoption, particularly among those who cannot currently be reached by other payment alternatives. This will require flexible distribution models and relevant and compelling use cases for CBDCs to prompt users to seek access. 2 https://www.itu.int/en/mediacentre/Pages/PR-2022-09-16-Internet-surge-slows.aspx 3 https://www.itu.int/en/mediacentre/Pages/PR-2022-09-16-Internet-surge-slows.aspx 4 https://www.itu.int/en/mediacentre/backgrounders/Pages/icts-to-achieve-the-united-nations-sustainable-development-goals.aspx 5 https://www.itu.int/en/mediacentre/backgrounders/Pages/icts-to-achieve-the-united-nations-sustainable-development-goals.aspx 6 https://www.bis.org/publ/bppdf/bispap125.pdf 7 https://reliefweb.int/report/zambia/digital-payment-solution-allows-refugees-zambia-receive-cash-directly-their-bank# 58 Emerging Technology for Emerging Markets: How Innovation Can Drive Sustainable Development