Global fintech and funding innovation ecosystem

BoC: Redefining Financial Inclusion for CBDCs

Report | Oct 4, 2023

BoC Report Redefining financial inclusion and Implications for a CBDC - BoC:  Redefining Financial Inclusion for CBDCs

Bank of Canada's Staff Release New Research on Implications for a Central Bank Digital Currency

Report Insights

1. Digitalization and Financial Inclusion

  • Canada experiencing a notable shift in consumer behavior and technology use, especially in how Canadians manage money and make payments.
  • The decline in the use of cash in favor of cards and digital payments has been significant, prompting broader considerations about digital money and its social implications.
  • Digitalization has permeated society, offering new opportunities but also creating and exacerbating existing inequities, especially in payments.

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  • The report applies the social model of disability to the Canadian payments landscape to identify opportunities to remove barriers that marginalize or hinder people.  The authors aim to build awareness of the inequities and challenges present in the current payments system and motivate fintech providers to offer more inclusive products and services.

2. Challenges in the Current System

  • The authors identify barriers faced by rural populations, Indigenous communities, Canadians with low incomes, and persons with disabilities in using financial products.
  • There is a noted deficiency in the current research and payment offerings for those with cognitive accessibility challenges.
  • Financial inclusion is often measured by access to bank accounts, with 98% of Canadian adults having a bank account and a debit card.
  • However, the remaining 2% who are unbanked, and the 13% without a credit card, may face limited options for online purchases and are at a higher risk of being excluded from the digital economy.

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  • The decline of cash as a payment method, from approximately 53% in 2009 to below 21% in 2021, also poses challenges for those who rely on banknotes.

3. Trust and Literacy in Financial Inclusion

  • Trust and literacy emerge as recurring themes across financial inclusion research.  Some people with low incomes have shown a preference for paper bills as assurance when transacting with banks and billing firms.
  • Discrimination experiences, especially in financial institutions and banks, have been reported by Black and Indigenous respondents, which may influence their engagement with traditional financial services.

What Can Canada Learn About CBDCs in Other Jurisdictions?

GDPR and Data Privacy

  • The General Data Protection Regulation (GDPR) has been implemented by the European Union and is considered a gold standard in regulating how companies use and secure consumer data.
  • GDPR-like data privacy laws have been adopted by many countries around the world since 2018, affecting international enterprises with customers or employees in Europe as well as those serving as data processors in Europe or for European companies.
  • The implementation of GDPR has faced challenges such as insufficient funds, complex procedural labyrinths, and infighting on implementation among national enforcers.

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  • The GDPR has led to many companies considering reducing their presence in Europe significantly, or even halt services in entire jurisdictions.

Best Practices in CBDCs and Privacy

  • Ensuring that users have control over their data and are aware of how it is being used is crucial. This involves clear communication about data usage policies and providing options for data control to the users.
  • Some CBDC models propose different levels of anonymity, such as "loose" anonymity, where the transaction data is visible to the central bank or "tight" anonymity, where the data is not visible to the bank.
  • Implementing data minimization practices that limit the collection of user data to what is strictly necessary for the transaction or service.
  • Employing robust security measures to protect user data from unauthorized access and breaches.
  • Establishing a clear legal framework that outlines the rights of the users and the obligations of the CBDC providers.

Country Model Examples

  • China's Digital Currency Electronic Payment (DCEP) model has been in pilot testing in various cities. The model is designed to replace cash in circulation and is not fully anonymous. The People’s Bank of China will be able to trace the DCEP to fight against money laundering, terrorist financing, and tax evasion.  See also:  Offline payments via super SIM cards
  • Sweden's e-Krona model by Sweden's central bank, Riksbank, is exploring to have an electronic currency that could ensure that the general public will retain access to a state-guaranteed means of payment in the future.
  • Bahamas' Sand Dollar is a digital version of the Bahamian dollar, launched by the Central Bank of The Bahamas. It provides for digital identity and maintains transaction privacy but is also compliant with AML/CFT regulations.

The Consumer's Voice is Critical

The insights derived from the report could serve as a foundational framework for policymakers, financial technology providers, and central banks in designing and implementing digital payment products and services that are not only technologically advanced but also universally accessible and equitable.  Beyond fintech innovators, traditional financial institutions, and policy-makers, the general public and consumer must be consulted and brought to the forefront of the discussion.

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