BIS Report: Can CBDCs be designed to help financial inclusion?

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BIS | Raphael Auer, Holti Banka, Nana Yaa Boakye-Adjei, Ahmed Faragallah, Jon Frost, Harish Natarajan and Jermy Prenio | Apr 12, 2022

Overview

Central banks are considering how retail central bank digital currencies (CBDCs) may help support financial inclusion. While they are not a magic bullet, central banks see CBDC as a further tool to promote financial inclusion if this goal features prominently in the design from the get-go. In particular, central banks are considering design options around promoting innovation in the two-tiered financial system (eg allowing for novel non-bank payment service providers), offering a robust and low-cost public sector technological basis (with novel interfaces and offline payments), facilitating enrolment and education (via simplified due diligence and electronic know your customer) and fostering interoperability (both domestically and across borders). Together, these features can address a range of existing barriers to financial inclusion.

See: New UK report: Access to financial services: 1 in 7 people are financial excluded

This paper draws on interviews with nine central banks with advanced work on CBDCs and financial inclusion, as well as ongoing research and policy work at the BIS and World Bank. It gives concrete examples from the central banks' work and discusses challenges, risks and regulatory and legal implications. It aims to facilitate peer learning on a key set of issues around CBDCs and financial inclusion policy faced by societies around the world.

Summary

Central banks are actively considering how retail central bank digital currencies (CBDCs) may fit with policy goals around financial inclusion.
The interviewed central banks take the view that, while CBDC is not a panacea, it can represent a further tool to promote financial inclusion if designed with this goal.
Barriers to financial inclusion differ across countries, but there were some common elements that came out in the interviews.
Some central banks consider CBDCs as key to their mandate as a catalyst for innovation and economic development.
Several central banks see CBDC more as a potential complement to existing financial inclusion initiatives.

See: BoC and MIT announce joint CBDC collaboration

Major challenges

Obtaining buy-in from stakeholders and safeguarding data privacy were highlighted as two major challenges.
BDC issuance may require new laws and regulations to be enacted, or existing laws to be revised.

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