Leading the Way in Payments: How Central Banks Are Using Innovation to Promote Financial Inclusion and Reshape Competition

Abstract

Central banks have increasingly embraced their role in advancing financial inclusion alongside their more traditional goals of maintaining monetary and financial stability. To that end, some central banks are using not just rules and regulations but innovation through direct intervention. Pix, the instant payments scheme powered by the Central Bank of Brazil, is a case in point. It illustrates the impact a proactive central bank can have on achieving inclusion and competition in payments while flashing out elements related to the discussion about public and private participation in the payments industry. Pix indicates that central-bank protagonism in payments can be a potent tool to promote inclusion and enhance competition, notably when private actors seem unwilling or incapable of doing so by themselves. However, the legitimacy of central-bank innovative interventions in payments may be questioned if central banks do not have a clear legal authority underpinning and setting the boundaries of their activism. This Article thus examines how far central banks can go with their innovative actions without overplaying their hand or displacing private initiative and ingenuity.

Keywords: central bank, payment systems, instant payments, Pix, innovation, financial inclusion, competition