## ftnea2023011 - section is to solely reflect on the beneficial aspects of physical cash that could be considered for designing CBDC for

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### Desirable properties of “digital cash”
- CBDC should replicate key desirable properties of cash: wide accessibility, low or no transaction fees, privacy protection, and trust and security.
- CBDC could in some aspects surpass cash and offer greater value to users while allowing compliance with AML/CFT requirements in line with the Financial Action Task Force (FATF) standard.
- Although cash is typically a safe store of value, the level of inflation could decrease its purchasing power.

### Wide accessibility and account access
- CBDC can be used without a bank account; access can be facilitated through digital wallets provided directly by the central bank or through service providers such as telecoms and social network or e-commerce platforms. (Footnotes: 15, 16, 17)
- CBDC should not require minimum balances to reach financially excluded populations with lower incomes.
- Formal identification could potentially not be required for small transactions; less stringent identification requirements can be applied to low-risk financially excluded populations to address barriers where customers lack reliable identity documentation. (Footnotes: 18, 19, 20)
- Example design cited:
  - eNaira “Tier 0” wallet requiring basic information such as a photo and telephone number, with much lower daily transaction limits. (Footnote: 20)

### Offline functionality and device inclusivity
- CBDC can offer offline functionality to serve populations without reliable internet or mobile connectivity, using technologies such as Radio Frequency Identification, Near Field Communication, or Bluetooth networking. (Kiff 2023; Footnote: 21)
- CBDC could be designed to operate on feature phones (non-smartphones) and stored-value cards to serve those lacking smartphones or reliable electricity for charging; feature phones and store-value cards are lower cost to access. (Footnotes: 22, 23)
- Practical pilot example:
  - The Bank of Ghana’s eCedi retail CBDC pilot is testing a stored-value card for offline transactions aimed at serving people in rural areas with limited access to mobile data networks. (Footnote: 23)

### Simplicity, usability, and accessibility design
- CBDC should have a simple and intuitive user interface/user experience (UI/UX) and be easy to use to accommodate low levels of digital literacy and diverse needs, including marginalized populations and people with disabilities. (Footnote: 24)
- The private sector may be better positioned to design appropriate user interfaces, but the central bank may want to oversee or develop UI/UX to ensure wide accessibility for underserved populations. (Footnote: 24)

### Achieving wide acceptance and market dynamics
- CBDC should be designed to achieve wide acceptance and could be considered for legal tender status; appropriateness should be assessed within the country’s local legal context.
- Market dynamics:
  - The payments market is two-sided, with a dynamic feedback loop where consumers benefit from increased merchant acceptance and vice versa; incentivizing both households and merchants is important to achieve widespread acceptance.
- Merchant-side measures:
  - Merchant acquisition costs should be low; partnering with retail associations to offer discounts on point-of-sale terminals and imposing QR code standards can eliminate the need for expensive terminal infrastructure. (Footnote: 25)
  - Financial incentives and value-add capabilities can boost merchant adoption:
    - The Bank of Jamaica launched the Small/Micro Merchant Incentive Program that rewards the first 10,000 merchants who sign up for the JAM-DEX CBDC platform with a one-time financial incentive. (Ministry of Finance and the Public Service of Jamaica 2023, 57)
    - CBDC could involve automated tax payments for merchants who otherwise find tax reporting and payments burdensome. (Alliance for Financial Inclusion 2022)
    - There can also be a tax reduction or exemption for small transactions made with CBDC. (Footnote: 27)
- User-side incentives:
  - Cashback rewards, discounts, or loyalty points can encourage adoption:
    - Uruguay’s e-Peso introduced a loyalty program that rewards users for making purchases with it. (Footnote: 28)
    - The Central Bank of the Bahamas committed to a giveaway of $1 million in Sand Dollars to the first adopters through 2024.

### Privacy, trust, and AML/CFT considerations
- CBDC design should address access, cost, privacy, and trust barriers that prevent the financially excluded from shifting from cash to existing digital payment services.
- CBDC must be designed to allow for compliance with requirements for anti-money laundering and combatting the financing of terrorism (AML/CFT) in line with FATF standards.
- Safe, secure, and low-cost offline payment functionality is under development and is being designed to manage potential risks of fraud, money laundering, and terrorism financing. (Footnote: 21)
- Tiered customer due diligence approaches have been explored to lessen identification requirements for specific low-risk populations while adhering to financial integrity objectives. (Footnotes: 19, 20)
- Data sharing and user agency:
  - CBDC can enable transaction data sharing with credit providers as a substitute for collateral or formal credit history, but linking transaction data to identities "poses a trade-off with user privacy."
  - Sharing CBDC transaction data "should take place with the user's consent," and users should be able to revoke or modify consent.

### Convertibility, fees, and settlement characteristics mirroring cash
- Convertibility and access:
  - CBDC should be easily convertible to and from cash; widely available agent access and onboarding points (post offices, grocery stores, participating merchants, ATMs, mobile or payment service provider agent offices) can help bridge convertibility barriers.
- Fees and cost:
  - Like cash, CBDC should have no or low fees for small transactions; CBDC can offer transactions at zero or low fees, especially for small transactions.
  - As a public-sector offering, CBDC does not need to generate profit for the issuer (the central bank) and could be cheaper than current digital payment offerings.
  - The central bank can potentially recover issuance costs through seigniorage, reducing the need for fees.
  - If private sector payment service providers operate CBDC, the central bank can regulate fees and limit charges.
- Efficiency and settlement:
  - CBDC could reduce intermediation in the retail payment transaction chain by settling transactions via direct transfers on the central bank’s balance sheet, circumventing intermediary mark-ups and improving efficiency—most prominent for cross-border transactions intermediated by counterparties in different jurisdictions.
- Privacy and trust:
  - CBDC could be designed to preserve privacy for small, low-risk transactions via tiered approaches.
  - CBDC would be safe and risk free as a direct liability of the central bank, with immediate settlement and real-time access to funds.
  - Strong cybersecurity and protections are necessary to secure CBDC against unauthorized access or cyberattacks.
  - Public communications, targeted education, and training initiatives can build trust and confidence in CBDC (examples: workshops, seminars, in-person assistance; Reserve Bank of India “digital payments awareness week” in 2023).

### CBDC as a gateway to broader financial services
- CBDC, once adopted by the financially excluded, can serve as an entry point to the broader formal financial system.
- CBDC should be designed to support further access to savings, credit, and insurance.
- Interoperability and technical integration:
  - CBDC should be seamlessly interoperable with existing payment infrastructure and instruments (credit transfers and ATMs, QR codes, point-of-sale devices, payment cards, mobile money).
  - Technical support (development tools, APIs, common standards, documentation) can facilitate integration and direct integration into third-party wallets and applications.
  - A clear and supportive regulatory framework can outline guidelines for digital financial service providers to integrate with CBDCs.
- Data sharing and alternative data:
  - CBDC should facilitate data sharing with financial service providers, with appropriate privacy protections, user consent, and adherence to country-specific regulations.
  - CBDC transactions create a digital record that can help establish financial histories and address information asymmetry in credit, insurance, and savings.
  - CBDC design should allow secure APIs and standardized data formats while giving users control over data sharing, including the ability to revoke or modify consent.
- Tokenization:
  - CBDC has potential to serve as a foundation for the tokenization of financial markets; tokenization benefits rely on settlement finality from central bank money in the same venue as other claims (BIS 2023b).
  - Tokenization could potentially improve credit intermediation with tokenized bank deposits if more accessible to the financially excluded than existing bank deposits.

### Practical examples and scale indicators cited
- Indonesia’s QR code standard (QRIS) saw the value of QR transactions rise to USD 6.5 billion in 2022 and 22 million merchants currently accepting payment by QR code. (Footnote: 25)
- Globally, about 850 million people lack government-issued proof of identity. (Footnote: 18)
- Pilot and program examples cited in the text:
  - eNaira “Tier 0” wallet (Nigeria).
  - Bank of Ghana’s eCedi stored-value card pilot.
  - Uruguay’s e-Peso loyalty program.
  - Central Bank of the Bahamas Sand Dollars giveaway of $1 million to first adopters through 2024.
  - Bank of Jamaica Small/Micro Merchant Incentive Program rewarding the first 10,000 merchants on JAM-DEX.

### Complementary policies to realize cash-like CBDC benefits
- Digital infrastructure and connectivity improvements, especially in remote areas.
- Digital literacy initiatives.
- Digital identification systems to streamline onboarding.
- Device access: subsidies for low-income individuals for devices and data plans, policies to promote competition in the mobile phone market, and community-based phone sharing programs.
- Financial literacy initiatives and targeted education approaches (teachable moments, youth curricula, targeting both senders and receivers of remittances).
- Regulatory and non-CBDC alternatives to consider where appropriate:
  - Fast payment systems and “e-money” schemes can deliver many payment benefits; countries should assess efficiency (cost and effectiveness in addressing barriers) when choosing between alternatives.

*Source: ftnea2023011 - section is to solely reflect on the beneficial aspects of physical cash that could be considered for designing CBDC for*

### References .............................................................................................................

### ftnea2023011 - References

### I. Introduction and High-Level Findings
- Global interest in central bank digital currencies (CBDCs) is unprecedented:
  - "93 percent of central banks are exploring CBDCs" (BIS survey, 2022).
  - "58 percent consider that they are likely to or might possibly issue a retail CBDC in either the short or medium term" (Kosse and Mattei 2023).
  - Retail CBDC issuance is being explored in "more than 100 countries."
  - "About 60 percent of emerging and low-income countries see financial inclusion as one of the top three motivations for issuing CBDC" (Kosse and Mattei 2023).
- Financial inclusion challenge:
  - "1.4 billion people remain outside of the formal financial system" (Demirgüç-Kunt and others 2022).
- Potential advantages of CBDC for inclusion:
  - Can be designed to replicate properties of cash as "digital cash" (usable without a bank account, low or no fees for small transactions, less stringent ID for low-risk populations).
  - Could operate offline.
  - As a direct liability of the central bank, CBDC could be "trusted and risk free (from a credit-risk perspective) as physical cash."
  - "More than 80 percent of central banks responded that there may be value in having both a fast payment system and a CBDC" (Kosse and Mattei 2023).
- Caveats:
  - "CBDC is not a panacea to financial inclusion" — impact is currently speculative and country-specific assessment is required.
  - Complementary policies (digital infrastructure, digital literacy, digital identification) are crucial to realize CBDC's inclusion potential.

*Note: This note focuses on retail (general purpose) CBDC; wholesale CBDCs are distinct.*

### II. Financial Inclusion: Rationale and Pathway
- Definition:
  - Financial inclusion = access to useful and affordable financial products and services that meet needs—payments, savings, credit, and insurance (World Bank 2022a).
- Why financial inclusion matters:
  - Poverty reduction and shared prosperity (World Bank 2022a).
  - Stimulates entrepreneurship, investment, and productivity; digital financial inclusion correlated with economic growth (Khera and others 2021).
  - Can reduce income inequality and support marginalized groups (Sahay and others 2015).
  - May enhance financial stability and monetary policy transmission by broadening the deposit base (Das and others 2023).
- Pathway to inclusion (Figure 1 summary):
  - Access to digital payments → gateway to other services (savings, credit, insurance).
  - Cash-digital divide: households relying on cash face high provider costs and information asymmetries that limit access to formal financial services.
    - Providers must establish physical infrastructure to handle cash (cash-in/cash-out agents, storage, transport), increasing operational expenses.
    - Cash-based transactions create limited digital records, causing information asymmetry that raises costs in insurance and credit markets and may prevent providers from serving low-cost segments.
  - Digital payments enable building a financial history that can be shared with providers, expanding access to products (subject to availability and affordability).

### III. Recent Evidence and Key Statistics on Inclusion (Preserved Exactly)
- Global Findex / usage statistics:
  - "57 percent of adults in developing countries made digital payments in 2021" (Demirgüç-Kunt and others 2022).
  - "24 percent saved formally" in 2021.
  - "22 percent borrowed formally" in 2021.
  - "Only 2 percent of adults saved formally while not also making digital payments."
  - "Only 1 percent of adults borrowed formally while not making digital payments."
  - "Of the adults who make digital payments, 58 percent either borrowed or saved formally, whereas only 7 percent of adults who do not make digital payments did the same."
- Recent trends:
  - "The share of adults making or receiving digital payments grew from 35 percent in 2014 to 57 percent in 2021."
  - "The share of adults borrowing formally grew from about 15 percent of adults in 2014 and 2017 to 22 percent in 2021."
  - "The share of adults saving formally has increased by 7 percentage points since 2011."
- Mobile money:
  - "Mobile money has been an important enabler of financial inclusion in several regions, including sub-Saharan Africa."
- Pandemic effects:
  - In India, "80 million adults made their first digital merchant purchase after the start of the pandemic"; in China, "more than 100 million adults" did so.
- Gaps and gender disparities:
  - "Women, the poor, the young, rural residents, and those outside the workforce all continue to have lower account ownership rates on average."
  - "In 2021, the 'gender gap' stood at 6 percentage points in emerging economies, where 74 percent of men globally have a financial account compared with 68 percent of women" (Demirgüç-Kunt and others 2022).
  - Regional variation: Sub-Saharan Africa, the Middle East, and North Africa experience "12- to 13-percentage point gaps" compared to East Asia and the Pacific at "roughly 3 percentage points" each.

### IV. How CBDC Can Support Financial Inclusion — Core Messages
- Three key messages:
  1. If properly designed with beneficial properties of "digital cash," CBDC has the potential to gain acceptance among the financially excluded for digital payments.
  2. CBDC should be designed to support further access to other financial services such as formal savings, credit, and insurance.
  3. Complementary policies to address digital exclusion can help maximize the potential of a well-designed CBDC.
- CBDC as "Digital Cash" — desirable cash properties and how CBDC can mirror them:
  - Cash properties:
    - "Cash is widely accessible."
    - "Small cash transactions are low or no cost."
    - "Cash preserves privacy" (not recorded).
    - "Cash is secure and trusted" and "as a direct liability of the central bank, is safe and risk free from a credit-risk perspective."
  - CBDC design opportunities:
    - Usability without a bank account.
    - Low or no fees for small transactions.
    - Less stringent identification for low-risk populations in line with FATF guidance on financial inclusion (FATF 2017).
    - Offline operation possibilities.
    - Ability to enable transaction data sharing (with user consent) to credit providers as a substitute for collateral or formal credit history—this introduces privacy trade-offs requiring user agency.
- Privacy and data sharing:
  - Sharing CBDC transaction data "should take place with the user's consent."
  - Linking transaction data to identities to enable credit provision "poses a trade-off with user privacy," and "Users should be given the agency to decide whether they prefer to keep their data private or to share it."

### V. Policy and Implementation Considerations
- Complementary measures necessary to realize inclusion benefits:
  - Digital infrastructure and connectivity improvements, especially in remote areas.
  - Digital literacy initiatives.
  - Digital identification systems to streamline onboarding.
- Country-specific assessment:
  - CBDC suitability must be "carefully assessed on a country-specific basis."
  - Assessment requires understanding each country's conditions and drivers of exclusion and whether CBDC can be designed and supported by complementary policies to address those barriers.
- Role relative to other solutions:
  - CBDC "could be considered as one component of a broader set of measures to improve financial inclusion."
  - CBDC has unique properties (credit risk–free digital money, offline payments, potential lower costs and greater accessibility) that may offer advantages over other solutions in some contexts.

### VI. Structure and Further Content of the Note
- The note's organization (mentioned for context):
  - Section II discusses financial inclusion.
  - Section III analyzes how CBDC can support financial inclusion.
  - Section IV discusses CBDC in the context of other solutions.
  - Section V presents a step-by-step framework for assessing CBDC for financial inclusion.
- The note concludes with "a step-by-step framework to help assess CBDC’s value proposition for improving financial inclusion in a country" and a Framework for Country-Specific Assessment is illustrated (Figure 4).

*Source: FINTECH NOTES — CBDC’s Role in Promoting Financial Inclusion (ftnea2023011).*

### section is to solely reflect on the beneficial aspects of physical cash that could be considered for designing CBDC for 

### ftnea2023011 - section is to solely reflect on the beneficial aspects of physical cash that could be considered for designing CBDC for

### Desirable properties of “digital cash”
- CBDC should replicate key desirable properties of cash: wide accessibility, low or no transaction fees, privacy protection, and trust and security.
- CBDC could in some aspects surpass cash and offer greater value to users while allowing compliance with AML/CFT requirements in line with the Financial Action Task Force (FATF) standard.
- Although cash is typically a safe store of value, the level of inflation could decrease its purchasing power.

### Wide accessibility and account access
- CBDC can be used without a bank account; access can be facilitated through digital wallets provided directly by the central bank or through service providers such as telecoms and social network or e-commerce platforms. (Footnotes: 15, 16, 17)
- CBDC should not require minimum balances to reach financially excluded populations with lower incomes.
- Formal identification could potentially not be required for small transactions; less stringent identification requirements can be applied to low-risk financially excluded populations to address barriers where customers lack reliable identity documentation. (Footnotes: 18, 19, 20)
- Examples cited include the eNaira “Tier 0” wallet requiring basic information such as a photo and telephone number, with much lower daily transaction limits. (Footnote: 20)

### Offline functionality and device inclusivity
- CBDC can offer offline functionality to serve populations without reliable internet or mobile connectivity, using technologies such as Radio Frequency Identification, Near Field Communication, or Bluetooth networking. (Kiff 2023; Footnote: 21)
- CBDC could be designed to operate on feature phones (non-smartphones) and stored-value cards to serve those lacking smartphones or reliable electricity for charging; feature phones and store-value cards are lower cost to access. (Footnotes: 22, 23)
- The Bank of Ghana’s eCedi retail CBDC pilot is testing a stored-value card for offline transactions aimed at serving people in rural areas with limited access to mobile data networks. (Footnote: 23)

### Simplicity, usability, and accessibility design
- CBDC should have a simple and intuitive user interface/user experience (UI/UX) and be easy to use to accommodate low levels of digital literacy and diverse needs, including marginalized populations and people with disabilities. (Footnote: 24)
- The private sector may be better positioned to design appropriate user interfaces, but the central bank may want to oversee or develop UI/UX to ensure wide accessibility for underserved populations. (Footnote: 24)

### Achieving wide acceptance and market dynamics
- CBDC should be designed to achieve wide acceptance and could be considered for legal tender status; appropriateness should be assessed within the country’s local legal context.
- The payments market is two-sided, with a dynamic feedback loop where consumers benefit from increased merchant acceptance and vice versa; incentivizing both households and merchants is important to achieve widespread acceptance. (Box 1 reference)
- Merchant acquisition costs should be low; examples include partnering with retail associations to offer discounts on point-of-sale terminals and imposing QR code standards to eliminate the need for expensive terminal infrastructure. (Footnote: 25)
- Financial incentives and value-add capabilities can boost merchant adoption:
  - The Bank of Jamaica launched the Small/Micro Merchant Incentive Program that rewards the first 10,000 merchants who sign up for the JAM-DEX CBDC platform with a one-time financial incentive. (Ministry of Finance and the Public Service of Jamaica 2023, 57)
  - CBDC could involve automated tax payments for merchants who otherwise find tax reporting and payments burdensome. (Alliance for Financial Inclusion 2022)
  - There can also be a tax reduction or exemption for small transactions made with CBDC. (Footnote: 27)
- User-side incentives can include cashback rewards, discounts, or loyalty points:
  - Uruguay’s e-Peso introduced a loyalty program that rewards users for making purchases with it. (Footnote: 28)
  - The Central Bank of the Bahamas committed to a giveaway of $1 million in Sand Dollars to the first adopters through 2024.

### Practical examples and scale indicators cited
- Indonesia’s QR code standard (QRIS) saw the value of QR transactions rise to USD 6.5 billion in 2022 and 22 million merchants currently accepting payment by QR code. (Footnote: 25)
- Globally, about 850 million people lack government-issued proof of identity. (Footnote: 18)

### Privacy, trust, and AML/CFT considerations
- CBDC design should address access, cost, privacy, and trust barriers that prevent the financially excluded from shifting from cash to existing digital payment services.
- CBDC must be designed to allow for compliance with requirements for anti-money laundering and combatting the financing of terrorism (AML/CFT) in line with FATF standards.
- Safe, secure, and low-cost offline payment functionality is under development and is being designed to manage potential risks of fraud, money laundering, and terrorism financing. (Footnote: 21)
- Tiered customer due diligence approaches have been explored to lessen identification requirements for specific low-risk populations while adhering to financial integrity objectives. (Footnotes: 19, 20)

*Source: ftnea2023011 - section is to solely reflect on the beneficial aspects of physical cash that could be considered for designing CBDC for*

### Box 1. CBDC Adoption in a Two-Sided Market

### Box 1. CBDC Adoption in a Two-Sided Market

### Two-Sided Market Dynamics
- The market for CBDC is two-sided, where consumers benefit from increased merchant acceptance and vice versa.
- Households adopt CBDC for:
  - access to a savings vehicle;
  - reduced cost of remittances (via cross-border CBDC);
  - more efficient government payments;
  - a valuable means of payment if accepted by merchants.
- Merchants accept CBDC only if there is sufficient household demand to make payments with CBDC.
- Merchants show greater uptake when CBDC fees are low and when there are tax exemptions or subsidies for transactions made in CBDC.
- An economy can be stuck at a steady state with low CBDC adoption when non-merchant-dependent CBDC features (remuneration on savings, cost of remittances, efficiency of government payments) are not sufficiently attractive.

### Policy Tools to Spur Adoption (model implications)
- Temporary subsidies, tax exemptions, and using CBDC for government payments can spur initial take-up and transition an economy to a welfare-improving steady state with higher CBDC usage.
- Empirical program examples cited:
  - In 2020, the Moroccan government introduced a five-year total exemption from taxes for transactions made by mobile payment with small merchants.
  - The People’s Bank of China launched a pilot program offering cashback rewards to users of its digital yuan during the 2021 Lunar New Year holiday.

### Implications for Financial Inclusion and Banks
- Greater CBDC adoption can lead to greater financial inclusion but potentially to the disintermediation of banks.
- Designing CBDC for greater adoption poses a trade-off between inclusion gains and risks to bank intermediation.
- The gains from financial inclusion and formalization (reduction in the use of cash) are more likely to outweigh the risks in lower-income countries with larger unbanked populations.

### Design Principles for Promoting Financial Inclusion
- Convertibility and access:
  - CBDC should be easily convertible to and from cash; widely available agent access and onboarding points (post offices, grocery stores, participating merchants, ATMs, mobile or payment service provider agent offices) can help bridge convertibility barriers.
- Fees and cost:
  - Like cash, CBDC should have no or low fees for small transactions; CBDC can offer transactions at zero or low fees, especially for small transactions.
  - As a public-sector offering, CBDC does not need to generate profit for the issuer (the central bank) and could be cheaper than current digital payment offerings.
  - The central bank can potentially recover issuance costs through seigniorage, reducing the need for fees.
  - If private sector payment service providers operate CBDC, the central bank can regulate fees and limit charges.
- Efficiency and settlement:
  - CBDC could reduce intermediation in the retail payment transaction chain by settling transactions via direct transfers on the central bank’s balance sheet, circumventing intermediary mark-ups and improving efficiency—most prominent for cross-border transactions intermediated by counterparties in different jurisdictions.
- Privacy and trust:
  - CBDC could be designed to preserve privacy for small, low-risk transactions via tiered approaches.
  - CBDC can offer greater trust as a central bank–backed product; distrust of the financial system is cited by more than a third of financially excluded adults in Argentina, Bolivia, Bulgaria, Colombia, Jamaica, and Russia (Demirgüç-Kunt and others 2022).
  - CBDC would be safe and risk free as a direct liability of the central bank, with immediate settlement and real-time access to funds.
  - Strong cybersecurity and protections are necessary to secure CBDC against unauthorized access or cyberattacks.
  - Public communications, targeted education, and training initiatives can build trust and confidence in CBDC (examples: workshops, seminars, in-person assistance; Reserve Bank of India “digital payments awareness week” in 2023).

### CBDC as a Gateway to Broader Financial Services
- CBDC, once adopted by the financially excluded, can serve as an entry point to the broader formal financial system.
- CBDC should be designed to support further access to savings, credit, and insurance.
- Interoperability and technical integration:
  - CBDC should be seamlessly interoperable with existing payment infrastructure and instruments (credit transfers and ATMs, QR codes, point-of-sale devices, payment cards, mobile money).
  - Technical support (development tools, APIs, common standards, documentation) can facilitate integration and direct integration into third-party wallets and applications.
  - A clear and supportive regulatory framework can outline guidelines for digital financial service providers to integrate with CBDCs.
- Data sharing and alternative data:
  - CBDC should facilitate data sharing with financial service providers, with appropriate privacy protections, user consent, and adherence to country-specific regulations.
  - CBDC transactions create a digital record that can help establish financial histories and address information asymmetry in credit, insurance, and savings.
  - CBDC transaction data may facilitate accounting for informal firms and help lenders and insurers evaluate financial behavior where formal credit history is absent (Tan 2023b).
  - CBDC design should allow secure APIs and standardized data formats while giving users control over data sharing, including the ability to revoke or modify consent.
- Tokenization:
  - CBDC has potential to serve as a foundation for the tokenization of financial markets; tokenization benefits rely on settlement finality from central bank money in the same venue as other claims (BIS 2023b).
  - Tokenization could potentially improve credit intermediation with tokenized bank deposits if more accessible to the financially excluded than existing bank deposits.

### Complementary Policies and Alternatives
- Key barriers for CBDC uptake include digital exclusion: limited digital literacy, limited electricity infrastructure, limited access to digital hardware, and limited identifying information for compliance.
- Complementary policies recommended:
  - Digital literacy programs to equip individuals with skills to navigate CBDC and reduce cybersecurity risks (Cooper, Esser, and Allen 2019).
  - Digital and electricity infrastructure development: about 700 million people worldwide lack access to electricity (World Bank 2023), and about 3 billion people lack access to the internet (United Nations International Telecommunication Union 2021).
  - Increasing access to mobile phones: subsidies for low-income individuals for devices and data plans, policies to promote competition in the mobile phone market, and community-based phone sharing programs.
  - Digital identification: national digital identification systems can streamline customer due diligence and authorities could consider automatically pairing an optional CBDC account with an individual’s digital identification account.
  - Financial literacy initiatives to support CBDC adoption and usage and broader financial product uptake; targeted education approaches (teachable moments, youth curricula, targeting both senders and receivers of remittances) show stronger impacts.
- CBDC is one of many solutions:
  - Other solutions can tackle barriers not addressed by CBDC (low financial literacy, cultural factors, low trust).
  - Examples of complementary or alternative measures:
    - regulations to limit fees of existing financial services;
    - policies requiring banks to offer basic deposit accounts without fees or minimum balance requirements;
    - open banking initiatives and open API standards;
    - regulations that increase safety and trust of existing financial services.
- Comparisons with other payment solutions:
  - Fast payment systems (real-time, round-the-clock transfers) offer immediate and seamless payment processing similar to CBDC (example: Brazil’s Pix).
  - “E-money” schemes (private sector) can deliver low-cost payments settled in commercial bank money on the payment provider’s balance sheet (examples: M-Pesa in Kenya, AliPay in China).
  - CBDC may offer unique properties for financial inclusion that other solutions do not provide; countries should assess efficiency (cost and effectiveness in addressing barriers) when choosing between alternatives.

*Source: Box 1. CBDC Adoption in a Two-Sided Market (ftnea2023011).*

### Box 2. Brazil’s Pix

### Box 2. Brazil’s Pix

### Overview and design
- Pix is a central bank–operated instant payment scheme launched by the Central Bank of Brazil in November 2020.
- The central bank fully developed the infrastructure and operates the system as a public good.
- The central bank sets the rules and technical specifications to create a standardized, competitive, inclusive, safe, and open environment.
- Funds transacted via Pix are commercial bank money; unlike CBDC, Pix is not central bank money.
- The central bank has expressed that a potential future CBDC could be compatible with Pix in terms of operations, policies, and technology.

### Adoption and financial inclusion outcomes
- Pix achieved rapid adoption and widespread usage: 70 percent of the Brazilian adult population had either made or received a Pix transaction.
- Pix allowed more than 50 million people (more than 20 percent of the population) who had not used a banking service to conduct a banking transfer for the first time within its first year of launch.

### How Pix relates to CBDC properties and the public-sector role
- Pix exemplifies a non-CBDC, public sector–operated fast payments scheme that can:
  - Offer standardized, interoperable, and publicly governed payment infrastructure.
  - Deliver benefits associated with a public-sector product—lower emphasis on profit motive and potential to ensure operational resilience.
- Distinctions between Pix and CBDC highlighted in the source:
  - CBDC is central bank money with unique properties (direct central bank account access, safety as a direct liability of the central bank, potential legal tender status).
  - Pix uses commercial bank money and operates within a framework of private-sector accounts transacting over public infrastructure.

### Lessons and policy implications relevant to inclusion
- Public-sector–operated fast payment schemes (like Pix) can achieve rapid uptake and reach underbanked and unbanked populations when designed for inclusivity and interoperability.
- Pix’s experience shows that a public, fast payment infrastructure can significantly lower barriers to first-time digital banking transactions.
- Compatibility between existing fast payment systems and potential future CBDCs can be a strategic design consideration (central bank noted potential compatibility).

### Key statistics and facts (verbatim)
- Launch date: November 2020.
- Adoption metric: 70 percent of the Brazilian adult population had either made or received a Pix transaction.
- Inclusion impact: more than 50 million people (more than 20 percent of the population) conducted a banking transfer for the first time within Pix’s first year.

*Source: Box 2. Brazil’s Pix (ftnea2023011).*

### References

### References

### Citations
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### Appendix — Reports and resources about CBDC and financial inclusion for further reading
- Alliance for Financial Inclusion (2022)—Central bank digital currency –   an opportunity for financial inclusion in developing and emerging economies?  
- Asian Development Bank (2023)—The role of central bank digital currencies in financial inclusion: Asia-Pacific Financial Inclusion Forum 2022  
- BIS and World Bank (2020)—Central bank digital currencies: A new tool in the financial inclusion toolkit?  
- BIS (2022)—CBDCs in emerging market economies  
- Cenfri (2019)—The use cases of central bank digital currency for financial inclusion: A case for mobile money  
- CPMI and World Bank (2020)—Payment aspects of financial inclusion in the fintech era  
- MIT Digital Currency Initiative (2023)—CBDC: Expanding financial inclusion or deepening the divide?  
- World Bank (2021)—Central bank digital currency: A payments perspective

### Appendix — Data sets and sources to understand financial inclusion conditions in a country
- CIA World Factbook  
- G20 Financial Inclusion Indicators  
- GSMA State of the Industry Report on Mobile Money  
- GSMA Mobile Money Regulatory Index  
- IMF Financial Access Survey  
- World Bank Enterprise Surveys  
- World Bank Global Findex Database  
- World Bank Global Financial Development Database  
- World Bank National Financial Inclusion Strategies Resource Center  
- World Bank Quality of Electricity Supply Database  
- World Bank Remittance Prices Worldwide

*Central Bank Digital Currency’s Role in Promoting Financial Inclusion NOTE/2023/011*

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_Source: https://www.imf.org/-/media/files/publications/ftn063/2023/english/ftnea2023011.pdf_