Unlocking the Potential of Central Bank Digital Currencies for Developing Countries

Abstract

The growth of financial technology and its use in payment systems have transformed many developing countries’ financial landscapes. It has provided affordable, convenient, and user-friendly alternative payment platforms for the unbanked and underbanked populations who would otherwise be financially excluded. Recognizing the transformative potential of technology in the financial systems and its positive impacts on financial inclusion, central banks worldwide are considering researching or actively developing central bank digital currency (CBDC). From a public policy objective, implementing CBDC will likely enhance financial inclusion, stability, and payment safety. It can increase competition among private payment systems, thereby reducing transaction costs. However, achieving financial inclusion in a CBDC economy will largely depend on users’ trust and confidence in CBDC as a mode of payment and settlement. The chapter investigates the possibility of capitalizing on the existing digital infrastructure (such as mobile money) to amplify CBDC’s positive effects on financial inclusion. It highlights the importance of building an inclusive and consumer-centric digital currency ecosystem in developing countries that underpins interoperable payment platforms and user-friendly customer onboarding mechanisms. An interoperable platform supporting digital payments between public and private monies can potentially boost the success of a CBDC and increase financial inclusion in developing countries.

Keywords: Central bank digital currencies, developing countries, financial inclusion