What CBDCs mean for financial inclusion and private sector banks

The world’s central banks understand that the future of money is digital. As payments shift online, the use of cash declines and the fortunes of crypto assets rise and fall, central bankers realize that their ability to command the use of money in their economies could weaken. This could also contribute to cement the financial exclusion of un- and underbanked citizens. To try and forestall such developments, central banks in all the world’s major economies and most of its lesser ones are exploring the creation of digital currencies. A handful of emerging economies have already launched their own.

The widespread introduction of central bank digital currencies (CBDCs), especially in the world’s major economies, is not imminent. But the groundwork being conducted in this area is detailed and in-depth. Therefore, many central banks will be ready to launch when their governments deem the circumstances to be right. Before that time comes, central banks have choices to make about the design of their CBDC systems, particularly those earmarked for retail use.

The state of play

According to the Atlantic Council, as of June 2023, 11 countries or their currency unions had fully launched digital currencies. At the same time, 21 had embarked on pilots, 32 had them under development and another 46 were at the early stages of researching them. Some initiatives are exclusively for retail CBDCs (including the 11 already launched), some for exclusively wholesale ones. Several large economies such as China, the US, and the Eurozone are exploring the launch of both.

We spoke with Marion Laboure, senior strategist at Deutsche Bank Research and co-author of a recent white paper on digital currencies, and Ashlin Perumall,a partner in Baker McKenzie’s Johannesburg office, to understand what some of design options are and how the choices made may have an impact on financial inclusion and the role of private sector banks in this new payments landscape.

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