Central Bank Digital Currencies as a Potential Response to Some Particularly Pacific Problems

Abstract

Despite years of effort, financial inclusion persists as a major challenge in the Pacific Island Countries (PICs), with many in the region still lacking access to financial services. This article argues that central bank digital currencies (CBDCs) offer a potentially highly efficacious solution to (i) the financial inclusion challenges of the PICs and (ii) the problem of high remittance costs that currently serve as a tax on the earnings of Pacific Islanders abroad. We identify the key challenges that may inhibit the rollout of CBDCs in PICs but argue that in time such a rollout is nonetheless highly likely – since the key drivers of CBDC development in the region are likely to be external to PICs themselves. While their potential is very significant, we conclude that now is not the time to issue a CBDC in the region, but it is the time to begin laying the groundwork for this innovation by developing the expertise required within the region’s central banks.

Keywords: CBDC, Central Bank Digital Currency, Pacific Island Countries, financial inclusion