First-ever central bank-backed digital currency can accelerate the digitization of transactions, infuse trust in payments systems, and drive greater financial inclusion
Omidyar Network announced today a for-profit investment in eCurrency Mint (eCM), a Dublin-based company that has pioneered a new technology that enables central banks to issue digital fiat currency, called eCurrency. eCurrency is different from the various forms of private sector digital value available today because it is issued by a central bank and has the same legal and monetary status as notes and coins.
eCurrency is more than a ledger. It is an end-to-end solution that combines hardware, software, and cryptographic security protocols to enable a country’s central bank to not only issue digital fiat currency, but also fully manage its operation, including the ability to monitor its movement through payments systems in near-real time.
Omidyar Network made the investment through the firm’s Financial Inclusion initiative, which focuses on supporting innovative technologies to massively increase reach and scale impact of affordable, convenient, and flexible financial services to consumers and small businesses globally. Funds raised during the Series C round, which Omidyar Network led, will make eCM’s ground-breaking technology available to central banks around the world, enabling them to evolve their national currencies efficiently and securely and to keep pace with today’s digital world.
“Paper-based money is becoming an antiquated tool in an increasingly digital economy. Those who rely heavily on cash to conduct their financial lives are often locked out of the formal financial system and the opportunities it presents,” said Tilman Ehrbeck, partner at Omidyar Network. “eCurrency can help accelerate financial inclusion by turning today’s digital value systems into sovereign-backed national currencies, increasing trust, and addressing key issues currently hindering the adoption of digital value systems, such as interoperability.”
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eCurrency also delivers major savings to governments and taxpayers: The cost of minting and distributing eCurrency is around one-tenth of the cost of printing, securing, distributing, and eventually destroying paper-based money. The solution works seamlessly across all existing payments systems and current infrastructures, and it can be customized to comply with nation-specific security and regulatory frameworks. It was developed based on feedback through direct engagement with 30 central banks and has been successfully piloted in multiple countries.
“As technological advancements have connected people globally, the payments industry has provided them with better, digital ways to transact. If we think of digital transaction platforms as a system of pipes, then mobile has added the last miles of these pipes, and the internet is reaching people at the farthest corners of the world. But as this digital revolution has been taking place, the issuance of currency has essentially remained the same,” said Jonathan Dharmapalan, founder and CEO of eCM. “eCurrency will enable central banks to issue a single, safe digital currency instrument running through these pipes, making the entire system more secure, transparent, efficient, and, more importantly, trustworthy, as it is now backed by the country’s central bank.”
How it works
Once the technology is acquired by a country’s central bank, eCurrency can only be minted by the central bank in an offline process. Each unit of eCurrency consists of a “cryptocomplex”: A self-contained security instrument made up of many layers of security technology uniquely bound together to ensure eCurrency cannot be counterfeited or compromised. After deployment, eCurrency’s security features can be updated real-time, in order to stay ahead of counterfeiting threats.
Once each unit of eCurrency has been created by the central bank, it is transported in digital form within a secure storage device to payments systems, such as banks and other financial providers, using the same existing delivery mechanisms available today for notes and coins. Those institutions then load eCurrency into their systems, making it available publicly for transacting.
Because each unit of eCurrency is equipped with a self-aware, unique identifier, the central bank can monitor the movement of eCurrency through payments systems in near real-time and continuously add up the money supply to ensure that the amount issued is the same as the amount in circulation at all times.
There is a large body of evidence indicating that shifting to digital transactions boosts economic growth. A Moody’s study shows that electronic payments added US$983 billion or 0.17 percentage points annually to economic growth across 51 countries—accounting for 93 percent of global GDP between 2008 and 2012. The study found this was the equivalent of creating 1.2 million additional jobs. During that period, the report estimates electronic payments added 0.8 percent to GDP in developing economies and 0.3 percent to GDP in developed economies.[i]
A research study by Citigroup and Imperial College estimates that 10 percent growth in the adoption of digital money across 90 countries will bring 220 million more people into the formal financial sector, add US$1 trillion of new flows in the formal economy, and lead to US$150 billion of additional consumer spending and US$100 billion more in tax collections.[ii] eCurrency can help accelerate the migration from paper-based transactions to digital transactions, solving issues currently hampering its growth, such as payments systems interoperability.