Central bank digital currencies may not be the holy grail of financial inclusion.

Recent developments of central bank digital currencies (CBDC) have kept the fintech world very busy. This month, we have had the OECD Blockchain Policy Forum, the CBDC Forum of the World Digital Economy Council, Hong Kong Fintech Week, MaltaAIBC, Nigeria Fintech Week, the Futurist Conference, and probably others. For us here on the West Coast of North America, this has meant very early mornings and too much coffee if there is such a thing.

While I jump between screens and virtual meetings, I start to realize just how great the divide is between those who think CBDCs are the next greatest fintech revolution, and those that think it is a predictable and reactionary move by big-brother governments to the problems of fiat.

The concept of financial inclusion remains a sticking point in the retail CBDC conversation. On the one hand, retail CBDC promises to help bank the unbanked (currently estimated at 1.7 billion people worldwide!) and give the underbanked greater access to financial services and instruments (i.e. savings (and perhaps interest), loans, equity and insurance). This comes with the shiny promise to increase economic resilience, alleviate poverty, and boost equality. Hello, UN SDGs.

On the other hand, CBDCs risk excluding people who rely on cash (if CBDCs intend to replace rather than complement cash). Sure - the global share of transactions executed with cash has been in steady decline, dropping from 89 to 77 percent between 2013 and 2018, and another 4 to 5 percent thanks to Covid-19, but it remains the most widely used form of payment around the world (McKinsey & Company, 2018; 2020). Cash is significant in emerging economies. If the use of a CBDC means that cash will be restricted or eliminated, those who use cash as their primary medium of exchange and do not have a reasonable, viable alternative will become newly financially restricted or, worse-yet, excluded. Sure – replacing cash with CBDC could (hopefully) eliminate illicit activity, but it also puts already vulnerable people in an even more tenuous position.

How can we pursue CBDC (because it seems inevitable) with a critical eye on the inclusion debate?

Here are a few principles that I’ve collected over the last few months of engaging with the experts.

CBDC should not be treated as a blueprint to be over-laid on any economy.

The macroeconomic differences between developing and developed economies (i.e. industrialization, GDP, GNP, per capita income, the standard of living etc.), and the socio-economic differences within countries (i.e. education, income, privilege, power, and access), require customization of CBDC design and implementation. This concept isn’t rocket science, but it is significant because,

  1. The social trust of centralized government financial institutions varies widely; if the fabric of trust is thin to start with, CBDC imposition will motivate illicit markets;

  2. Domestic legal tender laws may not be well aligned with digital currencies, opening up space for messy legal battles around the legitimization of payments;

  3. Institutional capacity, including the technical skills to facilitate digital currency use, varies hugely within and between countries;

  4. Financial and digital literacy at the community and household level is the baseline (and a precondition) for retail CBDC effectiveness;

  5. Connectivity, including sustained and accessible electricity, is a significant challenge for many countries and rural communities;

  6. Access to affordable smartphones has hugely improved over the years, but universal access still cannot be taken for granted – without smartphones, a computer, or a universal access device of sorts, the utility of CBDC is low;

  7. Progress towards digital identities (a likely precondition for CBDC) currently ranges from nothing to spotty. Digital IDs must be as comprehensive as the CBDC markets; and,

  8. Formal and informal economies will react differently to CBDC – the latter being more apprehensive in its adoption.

Restricting or replacing cash should be a gradual process that is sensitive to diverse and vulnerable populations.

Currently, many countries do not expect CBDC to fully replace cash (at least in the short term). However, even if cash is restricted, vulnerable populations that rely on cash will be disproportionately affected as CBDC use takes hold. For example, people without reliable internet, telecommunications and electricity, tend to rely on cash precisely because of the digital disconnect and will struggle with necessary access to CBDC accordingly. Those who do not have a moderate level of digital or financial literacy will have a hard time learning and interacting with the new system without educational support or extremely user-friendly interfaces. This impacts resettled or refugee groups moving from cash-dependent societies to areas where e-payments and e-banking is the norm. People with disabilities that challenge or prevent their ability to engage digitally will be dependent on assistance in some form, reducing independence and potentially financial privacy. The impact of CBDC will be more significant on those that have a higher current reliance on cash.

In Canada, many remote communities, including indigenous groups, tend to rely on cash as bank facilities are relatively non-existent. For some indigenous groups, cash has become an acceptable medium of redistribution. In Canada, the ceremony and symbolism of physically gifting is possible with cash, but it is hard to imagine with a universal access device and CBDC. An in-depth consultation with indigenous communities must be a part of CBDC design and application to ensure inclusivity. The same principle of early consultation and engagement applies to all intended users of CBDC.

In the event of negative interest rates, people are likely to find alternative ways to store and exchange value. If cash is restricted or replaced by CBDC, capital will head towards foreign currencies and private or decentralized cryptocurrencies. For people that don’t have the access or ability to move money, their ability to earn a healthy return on any small amount of savings evaporates, while inequality worsens.

Controls should be in place to limit the unjust use of CBDC and associated big data.

Will the use of a CBDC allow governments and central banks to track, trace and tax every transaction? There will be no anonymity and privacy like there is with cash-based holdings and trade. It is easy to view this in a positive light when it comes to curbing illicit activity. The devil is always in the details; what is deemed unlawful under one administration may be sanctioned under another. This matters because the use of a CBDC provides an unprecedented amount and detail of information that can be used in unjust ways. CBDCs have the dangerous potential to disenfranchise particular groups depending on the political flavour of the day.

Interoperability is crucial

Remittances have enabled significant financial inclusion around the world in their own right. That said, they are still privy to high transaction fees, shady intermediaries, lengthy transaction times, and the volatility of exchange rates. If interoperability between CBDCs is made possible, then the financial inclusion patterns of remittance flows will be free to expand beyond their fiat-based potential. If interoperability is limited or unavailable, progress achieved by remittances to date may slow or stop entirely. In this environment, remittance monies may also move to private or decentralized cryptocurrency markets. Developing the technology for interoperability seems possible and is crucial for the health of the remittance economy, but it will be moot if international cooperation falls flat.

CBDCs are not the holy grail of financial inclusion.

Tampering the hype around CBDC and financial inclusion, by both proponents and skeptics, will serve the CBDC experiment well. We should develop, pilot, monitor, evaluate and re-develop, free of too much assumption, expectation and ideology, to find quality results. Emphasis should lean away from holding central banks exclusively responsible for the inclusion/exclusion effects of CBDC. The role of the private sector may become vital and needs space to evolve. With this type of mindfulness, we can eventually feel confident that CBDCs may no longer be an experiment, but rather an intelligent evolution in our financial architecture designed for inclusivity.



Bruno, P., O. Denecker, and M. Niederkorn. October 1, 2020. Accelerating winds of change in global payments. McKinsey & Company.

McKinsey & Company. October 2018. Global payments 2018: A dynamic industry continues to break new ground. Global Banking.

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