Peru inaugurates first CBDC pilot

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Peru’s central bank has launched its first central bank digital currency (CBDC) pilot, selecting local telecom operator Viettel Peru as its partner.

The Central Reserve Bank of Peru announced the partnership recently but didn’t disclose any details about the pilot. Viettel is the local subsidiary of Vietnam’s state-owned multinational telecom operator Viettel Group, which started operating in Peru in 2014.

For Peru, a digital sol is the country’s attempt to digitize payments to enhance efficiency and cut costs. The government is also seeking to boost financial inclusion; according to the latest studies conducted two years ago, only half of Peruvians had access to formal financial accounts.

While this was a significant growth from 2014, when the World Bank revealed that only two in ten Peruvians were banked, it’s still relatively low for a country with a $242 billion gross domestic product (GDP). In stark contrast, 85% of neighboring Chile’s population is banked.

With close to half its population unbanked, Peru is heavily reliant on cash. According to the International Monetary Fund (IMF), high costs and insufficient digital infrastructure remain vital impediments.

IMF believes that a CBDC could eliminate many of the barriers to digital payments. However, the Latin American country would have to make some critical considerations, such as offering the digital solution via USSD, as a large portion of the population doesn’t own a smartphone.

It would also need to dissociate CBDC from the banking system, as the people who need it most don’t have bank accounts. In most countries, the CBDC wallet is linked to a bank account, allowing convenience, as customers can switch between the two easily. This allows the regulators to impose a holding cap—once a customer hits this threshold, the rest is converted to conventional bank deposits.

Peru could take notes from Japan, a more advanced economy that faces the same challenge of pervasive cash usage. Last year, digital payments made up 39% of the Asian giant’s payments. In contrast, neighboring China’s cash usage was down to 3.7% in 2023.

This cash dominance has affected the CBDC journey. A report in March this year revealed that only 3% of Japanese residents knew about the proposed digital yen.

Peru could face the same challenge. But beyond this, Peruvians are more distrusting of their government and the national currency. This could lead to the same challenge that Nigeria has faced with its e-Naira, which has failed to take off despite the African nation’s extensive cash struggles.

Watch: Finding ways to use CBDC outside of digital currencies