Bitcoin is not a useful instrument of financial inclusion to the world’s unbanked populations because its volatility scares them away. This is the opinion of Mastercard CEO Ajay Banga, which he delivered while speaking at the Fortune Global Conference 2020 on Oct 27
According to Banga, under whom Mastercard has pledged to reach one billion of the world’s last remaining unbanked populations by 2025, Central Bank Digital Currencies (CBDCs) offer a more practical solution if digital currencies are to be incorporated into the financial inclusion landscape.
.@Mastercard CEO Ajay Banga at #FortuneForum.— Robert Hackett (@rhhackett) October 27, 2020
He's a believer in central bank digital currencies, rather than Bitcoin, for financial inclusion, he tells @jenwieczner. Crypto-volatility is "not the way to get people included, that's a way to make them scared." @FortuneMagazine pic.twitter.com/hAcgraHsvU
Volatility – The Enemy
Banga’s point about Bitcoin’s perceived unsuitability is centered around the fact that financially excluded populations primarily need inclusion services with currencies that behave like conventional money. In his view, such people find very little utility in trying to use highly volatile speculative assets in lieu of regular fiat currencies.
An excerpt from his quote says:
“Bitcoin per se is volatile in its valuation. Can you imagine someone who is financially excluded trading in a way to get included through a currency that could cost the equivalent of two Coca-Cola bottles today and 21 tomorrow? That’s not a way to get them. That’s a way to make them scared of the financial system.”
It has been pointed out that cryptocurrencies like Bitcoin offer a much cheaper solution for unbanked people than carrying out transactions through high-interest lenders and check-cashing shops. Banga believes, however, that whatever cost advantage Bitcoin offers is wiped out by its infamous price swings illustrated in the chart below:
This is in stark contrast to the performance of the Indian Rupee for example, which is the fiat currency in a jurisdiction with a relatively high number of unbanked people over the same period. While the rupee has lost roughly 12 percent against the dollar since 2016, Bitcoin has rocketed up a dizzying 1,200 percent.
CBDCs to the Rescue for Mastercard
Mastercard is currently operating its Central Bank Digital Currency testing platform, which it says will help central banks to assess and explore their use cases and operational frameworks for proposed CBDCs.
Banga, who is a big fan of CBDCs did not miss the opportunity to mention that despite his position on Bitcoin, he still believed that CBDCs are the way forward. Expressing hope for more CBDC development by central banks, he said:
“Fiat currencies, if they were to go digital, would they be helpful in cross-border trade flows and improving the efficiency of those—yes for sure.”