To try and forestall such developments, central banks in all the world’s major economies and most of its lesser ones are exploring the creation of digital currencies, and a handful of emerging economies have already launched their own.

The widespread introduction of central bank digital currencies (CBDCs), especially in the world’s major economies, is not imminent.

But the groundwork being conducted in this area is detailed and in-depth, such that many central banks will be ready to launch when their governments deem the circumstances to be right.

Before that time comes, central banks have choices to make about the design of their CBDC systems, particularly those earmarked for retail use.

We spoke with two experts to understand what some of those options are and how the choices made may have an impact on financial inclusion and the role of private sector banks in this new payments landscape.

The state of play

As of June 2023, 11 countries or their currency unions had fully launched digital currencies, 21 had embarked on pilots, 32 had them under development and another 46 were at earlier stages of researching them.

Some initiatives are exclusively for retail CBDCs (including the 11 already launched), some for exclusively wholesale ones, and several large economies (such as China, the US, and the Eurozone) are exploring the launch of both.

With the exception of Nigeria, all of the 11 that have launched CBDCs thus far are small economies in the Caribbean region.

Why their speed to launch?

According to Marion Laboure, Senior Strategist at Deutsche Bank Research and co-author of a recent white paper on digital currencies, a major motivation for them is to expand financial inclusion, as most have large numbers of un- and underbanked citizens.

For Nigeria, says Ashlin Perumall, a partner in Baker McKenzie’s Johannesburg office, an additional impetus is to shore up the use of its own currency in domestic payments, thereby reducing use of the dollar, as well as to increase the visibility and traceability of money flows.

“There and in other African countries, CBDCs could solve problems that aren’t currently being solved,” Perumall  says.

There is currently less urgency in larger, wealthier economies to move toward CBDC launch. Singapore is a case in point.

After completing a pilot in late 2022, its central bank, the Monetary Authority of Singapore (MAS), stated that: “The use cases for a retail CBDC are unclear, given that electronic payments … are pervasive, and households and firms … are already able to transact digitally in a fast, secure and seamless manner today.”

Speaking of wealthy economies more broadly, Perumall also cites the travails of cryptocurrency markets as a reason for central banks to hold off. “Crypto threats to sovereign liquidity have receded somewhat in the past year,” he says.

The experts we interviewed nonetheless expect several major economies to launch CBDCs this decade. “It’s a question not of if but of when,” says Laboure.

A boon to inclusion

Bringing the unbanked into the financial mainstream is one of the principal advantages that a CBDC offers—particularly, as noted earlier, to less developed countries with large percentages of unbanked in their population.

A key feature of many retail CBDC projects is the ability of individuals to access a digital currency account offline as well as online.

“This is important as it effectively decouples financial inclusion from access to the internet,” says Laboure. Thus, people will be able to make CBDC transactions over basic mobile devices, using stored value cards, for example, or even text messages.

The financial inclusion benefit is not a given warns Perumall. “To lay claim to this feature, the system for a CBDC needs to be designed with inclusion in mind,” says Perumall. 

Offline access is one such design element, but there are more. For example,  the system must be interoperable with the diverse payment mechanisms used in an economy, and it must be accepted by merchants. It also requires simplified KYC (know-your-customer) and AML (anti-money laundering) processes.

Where the private sector fits in

Implicit in the above—and an altogether new departure in the history of banking—is the existence of a direct relationship between individual citizens and their country’s central bank, in which the former hold a CBDC account with the latter.

In some countries’ designs, citizens may use a mobile app to access that account directly, but it is more likely that private sector banks will play the role of intermediary in a two-tiered digital banking system.

There are nevertheless concerns that central banks could compete with retail banks for CBDC transactions, especially if the former opted to offer interest-bearing accounts. While not excluding that possibility, Perumall downplays disintermediation concerns.

“Private sector banks not only provide the mechanism for distribution of money into an economy,” Perumall says, “but they also provide the services and the management of such services that go along with it—things that no central bank has the capacity to do.”

Concerns also exist that CBDC accounts could exacerbate a banking crisis if customers began shifting funds from their retail banks to the safer haven of the central bank.

In Perumall’s view, however, the two-tiered system of most CBDC designs, along with non-interest-bearing accounts and limits on CBDC holdings, provide a safeguard of sorts against the possibility of bank runs.

Laboure similarly sees no CBDC threats to financial stability due to the same factors: their two-tiered design, zero interest accounts and caps on holdings. “Moreover, looking at countries where CBDCs are live, current adoption rates are low,” Laboure adds.

Preparing for the day

As the example of Singapore suggests, the possibility of an extended wait for the widescale introduction of retail CBDCs is real.

There is, after all, ample scepticism among politicians, and even some central bankers, about the very need for CBDCs.

“A solution in search of a problem?” is a recurring question about CBDCs asked in recent months and years by authoritative sources who posit the view that a digital currency offers more risk than reward.

Private sector banks should not, however, assume that launches will be delayed indefinitely. Singapore’s MAS, for one, has made clear that it could bring forward the launch of its digital currency if “innovative uses emerge or there are signs that digital currencies not denominated in [Singapore dollars] are gaining traction as a medium of exchange locally”.

Retail banks will need to make preparations. That means, for example, readying their technology systems to be able to process CBDC transactions at scale; creating electronic wallets or other end-user interfaces so their customers can begin making CBDC transactions; and developing ideas for new services associated with the management of CBDCs. It is not too early for banks to begin taking such steps.

Key Takeaways: 

• The widespread introduction of central bank digital currencies (CBDCs) in the world’s major economies.
• As of June 2023, 11 countries or their currency unions had fully launched digital currencies, 21 had embarked on pilots, 32 had them under development and another 46 were at earlier stages of researching them (data available in the article).
• With the exception of Nigeria, all of the 11 that have launched CBDCs thus far are small economies in the Caribbean region.
• Of the pilots, three are in Africa – Ghana, South Africa and Tunisia
• Principal advantages of CBDCs offers, retail CBDC key features and concerns.

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If I were to crystal-ball gaze, law firms will be home to a new breed of lawyers that have adapted to operate in a connected world.

These lawyers will be innovators, oozing passion, dynamism, enthusiasm and authenticity, not afraid to cultivate friendships and camaraderie in business partnerships, exploring ways to do things differently, finding practical, innovative solutions for clients, always considering the social impact of their actions and contributions, and exercising humanity in the course of their practice as lawyers.

This people-centric approach applies as much to leaders as to employees. In a survey of HR leaders by Gartner Inc. in March 2022, 90% of respondents believed that a focus on the human aspects of leadership was a requirement for employee satisfaction and business success.

Gartner noted that three traits were identified as necessary for transformative leadership – authenticity, empathy and adaptability. The survey revealed that organisations with human leaders experienced less turnover and higher engagement in their teams.

The crisp proposition is that business leadership’s main priority is to focus on its people, detaching from the outcomes and avoiding short term approaches to profit maximisation that fail to acknowledge its people as core to more sustainable outcomes. 

Simply put, human connection is essential in creating high-performing teams. The sense of belonging that comes from real connection is a vital part of creating an inclusive employee experience. When employees feel safe and comfortable, they are able to bring their whole selves to the workplace. Such employees are more productive, produce higher quality, more creative work and are less likely to leave.

To hone in on our people-centric approach, we created a compact for our employees, which outlines our focus on deeper connections at work, home and in the community, the implementation of radical workplace flexibility, a focus on personal growth and the holistic wellbeing of our employees, and a sense of connectedness and shared purpose across all our teams.

This inclusive approach also makes good business sense. A recent survey by Gallup found that a focus on employee engagement and inclusiveness resulted inan average 58%increase in net profit. By creating a culture that genuinely values people, organisations make themselves a better place to work, and more financially successful in the process.

Not only increased revenue, but improved performance comes when you have a great employee experience, where everybody feels like they belong and can bring all of their strengths to work. Our aim, therefore, is to celebrate our differences and find innovation and collaboration in diversity.

Likewise, employees want to know they are working in a role that provides not only personal meaning and connection, but that the business is fulfilling its responsibilities to other employees, society and the environment.

They are increasingly demanding that their employer’s activities match their own personal ideals. This extends to clients, shareholders, investors and other stakeholders, who want the organisations they work with to take a stance on important issues such as racism, sexual harassment, unemployment and inequality.

Law firms, like all other businesses, are looking at ways to attract and retain diverse and sought-after talent by redefining policies that are based on the overriding vison of creating happy and fun work environments, underpinned by lived values and enabled through transparent, respectful, diverse and inclusive, connected, solutions-driven and collaborative cultures.

And while collaborating with artificial intelligence tools has become an integral part of the work we do in providing innovative solutions for our clients, it is the strength of our human connection that will allow us to unleash our full potential.

To celebrate this important day, Baker McKenzie partners and its African Relationship Firm colleagues share some of their thoughts on the many opportunities that the continent offers.

“There are considerable opportunities across the continent, but not without responsibility. As well as being bankable and yielding attractive returns, it is becoming increasingly imperative that investment should be sustainable and also provide ancillary benefits to local economies. Simply put, it should be net positive for the region”, says Michael Foundethakis, Chair of the African Steering Committee.

For Ijeoma Uju, Partner, Templars, Nigeria, “Recent developments across the African continent show that the idea of ‘Africa Rising’ remains true and alive. With trade liberalization through the Africa Continental Free Trade Area Agreement (AfCFTA), a fast growing population and increased technology penetration, the opportunities in Africa’s key markets continue to expand.  What many see as challenges in Africa, are in a manner of speaking, Africa’s greatest strength for investments and growth.”

Virusha Subban, Partner, Head of the Tax Practice, believes “The AfCFTA agreement is gathering momentum and rapidly improving intra-African trade across the continent, thereby providing exciting opportunities for pandemic recovery and growth. At a high level, AfCFTA is focused on stimulating growth, creating employment and diversifying economies across the African continent through the creation of a single African market for goods and services. Once the agreement’s ambitious goals are realised, it will help African member states establish new cross-border value chains, encourage foreign investment and better insulate the continent’s economies from future global shocks.” 

“AfCFTA is leading to increased investor interest in sub-Saharan Africa as new markets open and cross-border transactions become more streamlined. China’s ongoing interest in Africa, a commitment from the European Union to strengthen partnerships with Africa, the United Kingdom’s new Economic Partnership Agreements and a renewed reciprocal trade focus from the United States, have contributed to improved investor sentiment across the region,” says Mike van Rensburg, Partner, Head of the Corporate/M&A Practice.

“The pandemic represented the start of a new era and there has been a shift in priorities and strategy for allocation of funds through this lens. There are more investments in the healthcare industry, as well as, energy, mining and infrastructure. Considering other factors, the AfCFTA agreement requires the development of transportation and logistics infrastructure focused projects to cater for a connected Africa and enable the acceleration of on-ground execution of intra-African trade,” according to Lamyaa Gadelhak, Partner and co-head of the Banking & Projects Practice Group at Helmy, Hamza & Partners, Baker McKenzie‘s Cairo office.

Also commenting, Kieran Whyte, Partner, Head of the Energy, Mining and Infrastructure Industry Group said, “Post-pandemic, new solutions are being implemented to address Africa’s power challenges. Such solutions have had to consider the energy transition and the utilization of renewable energy, the focus on smart power technologies, the role of green hydrogen and ammonia, and the global drive towards a decentralized, decarbonized, affordable and secure energy supply that addresses climate change and stimulates economic growth.” 

“African countries are increasingly playing a significant role in the global economy. Several industries are showing rapid growth, tapping into the significant usage of mobile telephones, a dynamic workforce, manufacturing opportunities, infrastructure growth, amongst others. With the continent continually making business environment reforms, the outlook for investing in countries like Kenya is much more exciting now than in the past”, Sonal Sejpal, Partner, ALN Kenya, opines.

For Mike van Rensburg, Head of the Healthcare and Lifesciences Practice, “Expanding access to quality healthcare services and increasing domestic pharmaceutical manufacturing capacity is dominating Africa’s healthcare sector and investment is following in support of these objectives. COVID-19 caused as massive spike in the already increasing demand for affordable healthcare, with technology-focused models, which allow for easier access to medical advice and care, already having begun easing the constraints of the traditional delivery model across Africa, before the pandemic.”

“Organizations that rely on supply chains in Africa are looking at ways to strengthen pandemic-impacted chains. Many effective treatments aimed at boosting the health of ailing chains are being implemented, including those that rely on digitization, sustainability standards, and commitments to improving infrastructure and manufacturing capacity”, Marc Yudaken, Partner, Head of the Industrials, Transportation and Manufacturing Industry Group, said.

“Competition authorities in Africa play an important role as champions, advocates and enforcers of competition policy across economies, and view competition policy as a key driver of economic growth. Our new Competition Report shows that 29 of the 32 surveyed African jurisdictions and regional bodies have national competition laws in place. Over the past two years, African competition regulators have actively engaged in efforts to address pandemic-related challenges, but there has also been a general upward trend in competition policy enforcement across the continent. African jurisdictions have strengthened their competition and antitrust regimes by way of amendments to existing legislation, the introduction of new laws and regulations, and renewed fervour and political will to enforce existing laws”, Lerisha Naidu, Partner, Head of the Antitrust and Competition Practice, also said.

Janet Mackenzie, Partner, Head of the IPTech Practice, in her submission, said, “The pandemic drove home the high value of personal data to the global economy, while also highlighting its vulnerability to abuse and attack. In response, many governments in Africa have been reviewing their data privacy and protection laws and regulations.”  

“The growth of the digital economy across the continent has naturally been accelerated by the pandemic and this unabated demand for technology has caused extensive cross-sector disruption in Africa, with the financial, energy, transport, retail, health and agricultural sectors all seeking opportunities to expand their tech infrastructure to acquire the necessary skills and innovation needed to keep up with demand. Fintech is also a popular sector for investment across Africa and specifically in South Africa, Kenya and Nigeria, with health-tech, mobility and agritech also attracting growing interest,” Ashlin Perumall, Partner, Corporate/M&A, said.

“Once the Internet of Things (IoT) becomes a reality, through the rollout of 5G, Africa’s transformation will be meaningfully accelerated through the ability to access the enhanced capabilities of smart cities, asset tracking, connected shopping, energy monitoring, smart homes and smart agriculture. It is, however, important to ensure that policy and legislative frameworks are in place to enable the efficient and affordable roll out of telecommunications infrastructure, as well as access to the required broadband spectrum. A further important focus for the success of 5G roll out will be the ability of consumers to access affordable data services and smart devices”, Janet Mackenzie, added.

“Despite the global pandemic, the African Fintech ecosystem has remained on a steady rise. Increasing access to mobile devices and internet connectivity has accelerated Africa into the second fastest market for global banking and payments businesses. Mobile money and third-party payment systems have been segment leaders, with more than half of the world’s mobile money customers now based in Africa, and the continent accounting for three quarters of the world’s mobile money and peer-to-peer transactions by volume. The Fintech industry has also accounted for more than 25% of all venture capital rounds in the last few years, with regional leaders, such as Egypt, Nigeria, South Africa and Kenya, seeing the majority of funded start-ups and capital coming from various jurisdictions, including west-coast United States and China”, Ashlin Perumall, said.

“Post-pandemic, disputes are becoming increasingly frequent and complex in Africa, as corporates and institutions continue to enter new markets against a backdrop of tighter regulatory scrutiny, increased digitisation and higher accountability. Initiatives in Africa going forward are also expected to have a heightened focus on environmental, social and governance issues. The discussions around ESG are also resulting in an added emphasis on the social aspect and the mitigation of  potential disputes in this space. In terms of governance, there has been an increased focus on due diligence and risk mitigation around compliance with regards to anti-bribery and corruption, data privacy and cyber security legislation, for example. Legal advisors are needed to oversee incident response plans, perform due diligence assessments, review and manage risk allocations in contracts and advise on comprehensive risk mitigation strategies for businesses expanding or launching operations in Africa”,  Darryl Bernstein, Partner and Head of Dispute Resolution, believes.

Arnold Lule, Partner, Engoru, Mutebi Advocates, Uganda also commented thus: “Arbitration continues to gain a real foothold in Africa. In the last five years alone, an additional seven African countries, including Ethiopia and Malawi, have acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Many African countries are parties to Bilateral Investment Treaties, most of which provide for arbitration to resolve investment disputes between foreign investors and host states. There are also a number of African arbitral institutions that have come up recently with state-of-the-art facilitiesand modern, party-friendly rules that cater to users’ needs, further providing assurance to parties that their disputes will be resolved in a fair, efficient and transparent manner.”

“Forecasts reflect the negative impact on economic growth caused by low vaccination rates across-sub-Saharan Africa. Employers across the continent are grappling with finding optimal staffing solutions for recovering businesses. Many businesses are keen to see employees returning to the workplace, with a large number (especially in the professional and business services industries) sensing an opportunity to attract and retain sought-after talent by offering flexible working arrangements. Companies were also forced to take a critical look at their staffing levels during the pandemic. Businesses right-sized and are generally running lean structures at the moment. With the World Bank predicting increased growth rates of 5.1% and 5.4% for 2022 and 2023, subject to increases in vaccination rates, businesses are looking to create capacity to deal with the anticipated economic upturn. Managing vaccination, return to work, flexible staffing and working arrangements, and talent traction and retention will assist companies in capitalising on opportunities. Business as usual will not work in the post-pandemic era”, Johan Botes, Partner, Head of the Employment Practice, said.

“Africa has, in the last several years, maintained growth in adverse conditions including most recently the COVID-19 pandemic. Many African countries continue to exhibit strength and fortitude as their economies recover and demonstrate resilience and vast potential. In 2021, we saw more money being invested in the continent in the last seven years and inevitably this will grow into 2022 and years to come”, Sonal Sejpal, Partner, ALN Kenya, also added.

The third in a five-part series of TMT Looking Ahead 2022, this report provides key takeaways and practical tips to mitigate risks in the Interactive Entertainment (IE) sector.

Metaverse environments can be defined as a simulated digital environment that uses augmented reality, virtual reality, and blockchain, along with concepts from social media, to create spaces for rich user interaction mimicking the real world.

It’s the next generation of the internet, it enables creators to deliver connected, immersive experiences based around activities.

The metaverse concept has been dominating headlines and metaverses garnering incredible capital investment, providing business with attractive new opportunities to position their brands, products and services in an innovative and stimulating way.

Companies still have an opportunity to position themselves as innovators and seize early adopter advantage, but must also develop strategies to meet the challenges posed to the protection of their IE assets and the enforcement of related IP rights.

Before commencing operations in one, or several, metaverses, businesses need to put safeguards in place to protect and where appropriate ring-fence their assets in the physical world.

“Businesses should analyze whether the activities they intend to develop in a metaverse may give rise to assets eligible for protection (e.g. user interfaces, avatars, etc.) and, if so, (i) which type of IP safeguard best suits these assets and provides the highest level of protection, as well as (ii) how enforcement measures will take place at this changing interactive space,” states José María Méndez, Partner, McKenzie.

Ashlin Perumall, Partner at Baker McKenzie in Johannesburg, notes, “As the lines between code and enforceable rights become blurred, businesses in the IE sector will need greater technical know-how from their teams and advisors to identify best practice mechanisms to replicate their physical world legal strategies.

“This includes how legal rights are established in relation to content and contracts with agencies and technology providers, but also how they are protected. In entering new spaces for content deployment, such as in establishing an NFT collection, there exists new tools of protection and enforcement as well as for establishing new ways of distributing revenue amongst creators.

“However, as businesses enter spaces relying on decentralised protocols, they will also need to be careful of a loss of control over their own content, as was the case with peer-to-peer file sharing from the early 2000s. This is an example of why careful mapping of strategy against these new environments will be key, and will involve a blend of legal and tech skills.”

Since activity in a metaverse environment generates a vast volume of data, which can be of great value to businesses, IE companies are accelerating their adoption of cloud services. Recent acquisitions show the importance for businesses to bring together a robust cloud infrastructure.

Also reducing cyber risks through proper data management will remain an important pillar of any security program.

Commenting on content regulation, Dominic Edmondson, Senior Associate, Baker McKenzie adds: “The same content may cause different legal issues in different jurisdictions, depending on local regulators and the courts’ views on freedom of speech, child protection, political rights, gambling and other issues.”

Creators of various virtual worlds are also focused on creating environments in which parties can buy and sell offerings and transact in payments of both fiat and virtual currencies.

This brings into play complex jurisdiction-specific financial regulations. Companies investing in this space will require acute technical understanding from their legal advisors as a means to control risk in these new ventures.