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Can central bank digital currencies help advance financial inclusion?
Journal of Payments Strategy & Systems,
17
(4),
433-447
(2023)
Abstract
Central banks around the world are considering how retail central bank digital currencies (CBDCs) may help to advance financial inclusion. While CBDCs are not a magic bullet, they could be a further tool to promote universal access to payments and other financial services if this goal features prominently in the design from the get-go. In particular, central banks can consider design options to: (1) promote innovation in the two-tiered financial system (eg allowing for non-bank payment service providers); (2) offer a robust and low-cost public sector technological basis (with novel interfaces and offline payments); (3) facilitate enrolment (via simplified due diligence and electronic know-your-customer processes) and data portability; and (4) foster interoperability (both domestically and across borders). Together, these features can address a range of specific barriers to financial inclusion: geographic remoteness, institutional and regulatory factors, economic and market structure issues, characteristics of vulnerability, lack of financial literacy and low trust in existing financial institutions. This paper draws on interviews with nine central banks with advanced work on CBDCs and financial inclusion — the Central Bank of the Bahamas, Bank of Canada, People’s Bank of China, Eastern Caribbean Central Bank, Bank of Ghana, Central Bank of Malaysia, Bangko Sentral ng Pilipinas, National Bank of Ukraine and Central Bank of Uruguay. It gives concrete examples from the central banks’ work and discusses challenges, risks and regulatory and legal implications. It argues that while CBDCs hold promise for furthering financial inclusion, CBDC issuance may also require new laws and regulations to be enacted, or existing laws to be revised.
Keywords: digital currencies; financial inclusion; universal access; payments; central banks
The full article is available to subscribers to the journal.
Author's Biography
Nana Yaa Boakye-Adjei Boakye-Adjei is a digital financial services and financial inclusion professional, with expertise in digital payments, cross-border remittances, central bank digital currencies and electronic money. She has extensive experience working with both private sector and public authorities in these areas. Her experience covers consulting with firms to design new product propositions (digital and cash-based remittance services, as well as domestic e-money solutions) and conducting market research to support product positioning. She has also worked extensively with international organisations, assessing market dynamics and developments and providing technical assistance on policy and regulatory aspects relating to digital financial services.
Raphael Auer is Head of the Eurosystem Centre of the Bank for International Settlements (BIS) Innovation Hub. Before this, he was Principal Economist in the BIS’s Innovation and Digital Economy and Monetary Policy units. He has also served as Deputy Head of the International Trade and Capital Flows unit at Swiss National Bank and Globalization and Governance Fellow at Princeton School of Public and International Affairs, as well as Junior Visiting Fellow at the Federal Reserve Bank of New York. He holds a PhD in economics from MIT and is President of the Central Bank Research Association. He writes on various topics relating to international macroeconomics and exchange rate pass-through, as well as on cryptocurrencies, stablecoins and central bank digital currency. He has also contributed to BIS policy publications and various international forums, including the G20-CPMI Cross-Border Payments Taskforce.
Holti Banka is a senior financial sector specialist with the World Bank’s Payment Systems Development Group. His work covers different aspects of retail payments including fast payments, central bank digital currencies, the intersection of payments, FinTech and financial inclusion, national retail payment strategies, cost measurement of payment instruments, payments infrastructure interoperability, among other areas. His work has been published in various academic journals and he has participated in various international conferences. He received his PhD in international development/economic policy from the University of Maryland.
Ahmed Faragallah is a senior financial sector specialist within the World Bank’s Payment Systems Development Group. He leads World Bank projects in various countries around the world, and co-chairs the Electronic Payment Acceptance Global Initiative. Ahmed has worked on market infrastructure projects such as real-time gross settlement, central securities depositories, switch card payments, fast payment systems and automated clearinghouses; FinTech initiatives to improve financial inclusion, including the regulation of mobile wallets, interoperability and card regulations; and simplified due diligence in the prevention of money laundering. Before joining the World Bank, Ahmed managed the Payment Systems Department in the Central Bank of Egypt. He holds a certificate in FinTech from Harvard University and an MBA from Georgia State University. He graduated from the Faculty of Engineering at ASU, Egypt.
Jon Frost is Head of Economics for the Americas at the Bank for International Settlements (BIS). In this role, he leads a team of economists and analysts in the BIS Americas Office, doing policy-oriented research and supporting collaborative activities between central banks in the Americas. Jon has published on FinTech, big tech in finance, central bank digital currencies, stablecoins, capital flows, and technology and inequality. Jon has also worked in the BIS Innovation and Digital Economy units, as well as at the Financial Stability Board, the Netherlands Bank and VU University. He holds a PhD in economics from the University of Groningen. He is a research affiliate of the Cambridge Centre for Alternative Finance at the University of Cambridge, and has served as a board member in the FinTech@CSAIL initiative of the Massachusetts Institute of Technology.
Harish Natarajan is the Lead Financial Sector Specialist on Payments and Market Infrastructures in the World Bank’s Finance, Competitiveness and Innovation Global Practice, and a core member of the cross-sectoral teams working on Universal Financial Access 2020, ID for Development, Government Payments, Digital Economy and FinTech. Harish represents the World Bank in the working groups of the Committee on Payment Market Infrastructures at the Bank for International Settlements and FinTech related working groups at the Financial Stability Board. Prior to joining the World Bank, Harish held various senior-level positions in business development, operations and risk management at VISA Inc. He has also worked for Citigroup, Infosys and other technology companies in the areas of payment systems and retail banking. Harish holds an undergraduate degree in electrical and electronics engineering from IIT-Madras and a postgraduate diploma in management from IIM-Calcutta, specialising in IT systems and finance.
Jermy Prenio is a principal advisor in the BIS Financial Stability Institute (FSI), where he helps manage the FSI’s outreach programme for financial supervisors. He contributes to the FSI’s published work, mainly on technology-related topics such as FinTech, SupTech and cyber security, and develops other policy-related material for FSI Connect. He also manages the activities of the Informal Suptech Network and coordinates the FSI’s work related to financial inclusion. Previously, he was Deputy Director for Regulatory Affairs at the Institute of International Finance, where he led the formulation of the global banking industry’s views on international regulatory issues. He has also worked as a regulator in the Philippines, where he headed the Task Force on Basel II Implementation.
