Authors: Tuhu Nugraha in collaboration with Dr. Pinki Rani*
Corruption in developing countries, particularly in the African continent, has indeed posed a significant obstacle to economic and social development. According to analyses by Edgardo Buscaglia and Tafi Mhaka, the prevalence of corruption in Africa can often be attributed to factors such as weak legal infrastructure, imbalances of power, and a lack of government transparency. The annual loss of approximately $88.6 billion or 3.7 percent of Africa’s GDP due to illicit financial flows underscores the substantial impact of corruption on the economies of these nations.
Notable cases, like the one in Malawi where President Lazarus Chakwera took decisive action against corruption by dismissing high-ranking officials, serve as examples of strong responses to this issue. Similar cases in South Africa, Zimbabwe, Mozambique, Namibia, and Angola highlight the widespread nature of corruption challenges. In Indonesia, alleged corruption cases related to rice social assistance reveal significant financial losses to the state and emphasize the need for enhanced transparency and oversight in the distribution of social aid. To address these challenges effectively, stricter oversight and increased transparency must be implemented throughout the entire process of aid distribution, from its inception to its completion.
It’s worth noting that according to the Corruption Perception Index 2022, Indonesia is ranked 110th with a score of 34, India is ranked 85th with a score of 40, and South Africa is ranked 72nd with a score of 43. These rankings provide further context regarding the perception of corruption levels in these countries, with lower scores indicating a higher perceived level of corruption.
The prioritization of job creation and the reduction of government corruption by young people in Africa, as indicated by surveys, underscores their awareness of the detrimental effects of corruption and the pressing need for governance reforms and increased transparency.
The implementation of Central Bank Digital Currency (CBDC) in social assistance distribution offers significant advantages, particularly in the context of developing countries. CBDC enables more transparent and traceable transactions, which are crucial steps in reducing corruption and fund misappropriation. Traditional systems often suffer from high transaction costs and slow settlement processes, but with CBDC, both of these issues can be minimized.
CBDC also eliminates intermediaries in fund distribution, which is highly relevant in developing countries where distribution chains are often long and complex, increasing the risk of fund loss. By directly connecting the fund provider with the recipients, CBDC offers a more efficient and effective solution. Furthermore, CBDC enables real-time tracking of fund usage, ensuring that aid reaches the intended target groups and is used for its intended purposes.
In the context of developing countries where financial infrastructure may not be fully developed, CBDC also has the potential to expand financial inclusion by providing access to financial services to those previously underserved by traditional banking systems. This opens the door to social assistance that is more accessible to the broader population. Moreover, CBDC can help address fund misappropriation by recipients. For example, education fund assistance that should be used for educational purposes is often misused to purchase unrelated items, such as cigarettes. With CBDC, fund usage can be monitored more closely, ensuring that aid is used for the right purposes and reducing the risk of misappropriation.
The implementation of CBDC in social assistance distribution in developing countries could be an effective initial step in bureaucratic reform. This approach does not directly pose a threat to existing elite structures and corrupt systems, making it potentially well-received. CBDC offers transparency and efficiency without disrupting the status quo, which can build public trust and improve the perception of elites as supporters of progress and innovation.
Political will from elites and the government is key to the success of this initiative. If CBDC is viewed as a means to improve the overall welfare of the population without threatening existing power, it is more likely to be accepted and adopted. This factor is crucial because CBDC can be seen as a tool that enhances the image of political elites as populists, demonstrating their commitment to inclusive and accountable development.
Public acceptance of CBDC will also be easier if it is seen as part of a transparent and responsive government effort to meet the needs of the people. Therefore, CBDC becomes not only a symbol of technological progress but also a tangible manifestation of a government striving to improve the quality of life for its citizens. Thus, CBDC has the potential to be accepted by both the public and political elites, simultaneously promoting innovative policies that are responsive to the needs of the people.
The implementation of CBDC in social assistance distribution has the potential to trigger significant changes in demands for government transparency and accountability. When the public witnesses the effectiveness of CBDC in disbursing social assistance, it builds the expectation that similar transparency can be applied in other areas. Positive experiences like this encourage the public to demand the same standards in other aspects of governance, demonstrating that a more transparent and accountable system is not only possible but also desirable.
The systemic effects of implementing CBDC can catalyze changes in policies and government practices towards greater transparency in various sectors. For example, the adoption of blockchain technology in other social welfare programs such as food subsidies or education assistance can ensure fair and transparent distribution. Additionally, the use of blockchain in land registration, licensing, and other public services can enhance efficiency and reduce bureaucracy. The success of CBDC in social assistance distribution can also serve as a catalyst for the adoption of similar technologies in other government programs, such as tax systems and budget management.
As a result, the increasing public awareness and demands for higher transparency and accountability can drive governments to continually improve and refine their systems. This initiative ultimately helps build a culture of accountability and transparency in governance, which is the foundation of good governance, enhances the quality of public services, and strengthens public trust in the government.
The implementation of CBDC in developing countries represents a significant step forward not only in modernizing the payment system but also in bureaucratic reform and improving good governance. This initiative has the potential to enhance government systems and reduce corruption by offering higher transparency and efficiency. It supports the achievement of Sustainable Development Goals (SDGs), particularly in terms of justice, effective institutions, and reducing inequality, by simplifying financial processes and expanding access to financial services.
However, there are several challenges and obstacles that may be encountered in the implementation of CBDC in developing countries. First, underdeveloped technological infrastructure can be a barrier, as CBDC requires a robust and secure digital system. Second, cybersecurity issues are a major concern, especially in protecting data and transactions from cyberattacks. Third, public education and awareness about the use of digital currency need to be enhanced, as this concept is relatively new to many people. Fourth, there is potential resistance from traditional financial institutions that may feel threatened by these changes. Finally, there needs to be a balance between innovation and regulation to ensure that the implementation of CBDC does not create new problems, such as financial exclusion or economic instability.
Overall, while CBDC offers many benefits, a cautious and integrated approach, considering potential challenges and obstacles, is key to successful and effective implementation.
*Dr. Pinki Rani is working as an Assistant Professor in the department of Commerce at Indira Gandhi University, Meerpur, Rewari, Haryana, India. Holding a Doctoral degree from Chaudhary Devi Lal University, Sirsa, Haryana, Dr. Pinki Rani brings over Twenty years of rich experience to the academic community. Specializing in Accounting, Finance, Strategic Mgt, and Computer applications in Business she is a seasoned researcher with numerous publications in esteemed journals, contributing significantly to the academic discourse.