BIS publishes study on CBDCs and their role in financial inclusion for the unbanked

The Bank for International Settlements (BIS) on Tuesday released a paper on central bank digital currencies, or CBDCs, and how they can be used to achieve financial inclusion policy goals. The paper was based on interviews conducted in the second half of last year at nine central banks currently reviewing retail CBDCs. It addressed common goals across a range of economic development stages and challenges for inclusion.

The paper identified two distinct approaches to CBDC. Some central banks saw the digital currency as a catalyst for innovation and development, while others expected it to serve as a complement to existing initiatives. All central banks stressed the need for education and stakeholder acceptance, both consumers and service providers.

Data protection and the associated issues of money laundering and terrorist financing were seen as the greatest challenges. Service to vulnerable people – children, the elderly and users with disabilities – was also mentioned as a priority.

Some challenges, such as geographic isolation and levels of digitization, varied by central bank, but several CBDC design features were highlighted as key to financial inclusion across the spectrum. The elements mentioned in this context were the promotion of a two-tier payment system with private-sector participants, interoperability across multiple functions and borders, and appropriate regulation.

The central banks discussed in the paper were those of the Bahamas, Canada, China, the Eastern Caribbean, Ghana, Malaysia, the Philippines, Ukraine and Uruguay. The World Bank also participated in the investigation.

The BIS has taken a strong stance on the central bank’s place in the emerging digital economy and the need for cryptocurrency regulation. It recently completed a successful pilot called Project Dunbar with the central banks of Australia, Malaysia, Singapore and South Africa to create an international settlement platform.