## Positioning Central Bank Digital Currency in the Payments Landscape — NOTE/2024/006

## Source details

**Canonical URL:** [Positioning Central Bank Digital Currency in the Payments Landscape — NOTE/2024/006](https://www.imf.org/-/media/files/publications/ftn063/2024/english/ftnea2024006.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/ftn063/2024/english/ftnea2024006.pdf.md)
- [Structured JSON version](/-/media/files/publications/ftn063/2024/english/ftnea2024006.pdf.json)

---

### Introduction: purpose, landscape, and strategic posture
- Purpose and scope
  - Compares retail CBDC (digital central bank money available to the general public) with Fast Payment Systems (FPSs) and e-money from a payments perspective.
  - Does not directly compare CBDC with stablecoins (not yet widely used in payments).
  - Does not advocate for CBDC over FPSs or e-money; choice depends on jurisdiction objectives and constraints.
- Evolving payments landscape
  - Innovations driven by supply-side innovation and user demand for faster, lower-cost transfers.
  - E-money and FPSs have delivered efficiency gains; privately issued crypto assets and stablecoins increase focus on public solutions.
  - Trend toward a multi-instrument, multi-infrastructure landscape; changing user behavior alters the use and role of cash.
- Strategic considerations for central banks
  - Holistic assessment needed covering legal, macro-financial, and operational considerations.
  - Central banks should address existing pain points while preserving capacity to adapt.
  - Trade-off between policy desirability and practical feasibility.
- Potential roles of CBDC exploration
  - Can catalyze interoperability, incentivize private-sector coordination, and support interim improvements.
  - Private developments (tokenized deposits, stablecoins) should be considered in landscape assessment.
- Constraints influencing strategy
  - Legal, regulatory, supervisory, governance, capacity, and resource constraints shape options.
  - Both CBDC and publicly owned FPSs require high levels of public sector involvement and similar development costs.
- Paper structure (high level)
  - Comparisons of systems, context of evolving landscape and objectives, strategies and constraints, illustrative strategy and takeaways.

### Understanding retail payment systems: instruments, infrastructure, schemes
- Stylized model components
  - Instrument: the liability (money) of a specific issuer.
  - Infrastructure: hardware and software enabling transfers.
  - Scheme: rules, practices, and standards for executing transactions.
- E-money systems (assumed software-based, closed-loop model)
  - Instrument: e-money (typically issued by nonbank financial institutions, often backed by bank deposits).
  - Infrastructure: secure digital wallets and communication networks.
  - Scheme: focused on issuer-customer relationship; interoperable e-money requires broader scheme rules.
- Fast Payment Systems (FPSs)
  - Focus on infrastructure and scheme to bridge transfers between private issuers at speed.
  - Instrument: commercial bank money or e-money.
  - Settlement: can occur via private settlement systems or central bank using participants’ central bank funds.
  - Scheme scope varies from settlement-only roles to comprehensive end-to-end rules.
- Central Bank Digital Currency (CBDC) systems
  - Instrument: CBDC is central bank money—liability on central bank balance sheet.
  - Infrastructure: partially or fully publicly owned and operated.
  - Scheme: central bank–involved end-user encompassing rules; no clear prevailing operational model yet.

- Similarities and differences (key features)
  - Core difference: nature of the instrument (central bank liability for CBDC; private liabilities for e-money and most FPS transfers).
  - Availability: funds are typically available to payee instantly (FPSs sometimes “near immediate” with delays up to minutes or a couple of hours).
  - Settlement models:
    - CBDC and e-money networks: Real-time gross settlement (RTGS).
    - FPSs: RTGS or deferred net settlement (DNS).
  - Risk profiles:
    - Operational and legal risks across all three.
    - Credit risk present in FPSs and e-money; not present in CBDC.
    - Liquidity risk can arise in CBDC and e-money during funding/defunding; prevalent in FPSs.
  - Ownership:
    - CBDC: infrastructure and scheme likely owned by the central bank.
    - FPSs: could be public, private, or jointly owned.
    - E-money: privately owned infrastructure and scheme.
  - Supervision and regulation: public sector likely remains supervisor/regulator across systems.

- Table summary (features preserved from source)
  - Instrument (Liabilities being transferred for end users (issuer)):
    - CBDC SYSTEMS: CBDC (central bank)
    - Fast Payment Systems: Commercial bank money or e-money (from private issuers)—the most common form is a “credit transfer”
    - E-Money Systems: E-money (of a specific private issuer)
  - Infrastructure and scheme (Availability of funds to payee):
    - CBDC SYSTEMS: Instant
    - Fast Payment Systems: Instant (or near immediate)
    - E-Money Systems: Instant
  - Infrastructure and scheme (Settlement):
    - CBDC SYSTEMS: Real-time gross settlement
    - Fast Payment Systems: Real-time gross settlement or deferred net settlement
    - E-Money Systems: Real-time “on us settlement”
  - Infrastructure and scheme (Risks in system):
    - CBDC SYSTEMS: Operational and legal risks present. No credit risk. Liquidity risks may arise during funding and defunding
    - Fast Payment Systems: Operational, legal, credit, and liquidity risks present
    - E-Money Systems: Operational, legal, and credit risks present. Liquidity risks may arise during funding and defunding
  - Infrastructure and scheme (Ownership):
    - CBDC SYSTEMS: Infrastructure and scheme likely owned by the central bank
    - Fast Payment Systems: Infrastructure and scheme could be public, private, or jointly owned
    - E-Money Systems: Infrastructure and scheme privately owned

- Closed-loop versus interoperable systems
  - Closed-loop: issuer facilitates transactions within a self-contained network; minimizes credit and settlement risk; can favor monopolistic tendencies.
  - Interoperable: facilitates transactions across networks and issuers; requires sophisticated regulatory/operational frameworks.
  - Mixed cases exist (e.g., intrabank “on us” payments as closed-loop; card schemes as interoperable).

### Sweden case and policy rationale for CBDC (Box 2)
- Cash decline and policy response
  - Card payments dominate in-store payments; cash usage and availability of cash services declining.
  - Riksbank sees state intervention necessary to maintain payment access for all and preserve crisis resilience.
  - Riksbank researching e-krona since 2017; no decision on issuance yet.
  - Riksbank urged immediate legislative action on cash acceptance to prevent cash becoming unusable in near term.
- Private digital monies and risks
  - Crypto assets mainly speculative; stablecoins limited but used for cross-border transactions and remittances in some emerging and developing markets (FSB 2024).
  - Perceived preference for US dollar–denominated stablecoins where high inflation or currency devaluation exist.
  - Significant adoption of crypto assets or stablecoins could undermine monetary policy if they become alternative units of account.
- Foreign CBDCs and policy implications
  - Easy access to foreign CBDCs can influence domestic payment ecosystem evaluation.
  - Majority of central banks globally exploring CBDCs.
  - CBDC's status as central bank instrument and higher regulatory certainty may make them attractive for everyday payments.
  - Presence of multiple currencies in a jurisdiction introduces currency substitution and capital flow complexities.
- How systems meet central bank objectives (financial inclusion, efficiency, competition, resilience, public access to central bank money)
  - Financial inclusion:
    - FPSs: correlate positively with inclusion by providing instant availability of funds.
    - E-money: enables access for unbanked users.
    - CBDC: can act like e-money for entry to wider financial system; design can target underserved populations.
  - Efficiency:
    - All three can provide instant payments and 24/7 availability.
    - CBDC could be offered without fees to individuals (surveyed central banks' view); fees might apply for value-added services.
    - CBDC designed as “digital cash” could reduce cash management costs.
  - Competition:
    - Multiple solutions support competition; CBDC can lower barriers to entry for nonbank PSPs by providing market-neutral public infrastructure.
    - CBDC could crowd out private innovation if not carefully designed.
    - Around 30 percent of FPSs are more restrictive compared to domestic RTGS (CPMI 2021).
  - Resilience:
    - Multiple alternatives enhance redundancy; CBDC operating outside existing rails can strengthen operational and cyber resilience.
  - Public access to central bank money:
    - FPSs and e-money cannot alone ensure public access to central bank money because they transfer privately issued money.
    - Retail access to central bank money preserves monetary sovereignty and supports monetary and financial stability.
    - CBDC generally seen as complement to cash; central banks continue cash supply as long as demand exists.

### Design choices for CBDC that could support financial inclusion (Box 3)
- Role of payments in financial inclusion
  - Payments gateway to savings, loans, credit; instrument and infrastructure must be always available, accessible, usable, and affordable.
- Four areas where CBDC may offer incremental benefits
  - Immediate settlement and increased trust
    - CBDC as public money may attract the “willingly excluded” distrustful of private institutions.
    - Immediate receipt of funds benefits users relying on immediate cashflow.
    - About a quarter of the unbanked population cited distrust in the banking sector as a reason for not having a bank account (sample analyzed by Demirgüç‑Kunt and others (2022)).
  - Universal access
    - Distribution through banks, nonbanks (telecoms, post offices), or specialist providers to overcome geography, inclusive design, and identity barriers.
    - Wallets with lower identity requirements for very small value payments could be offered if deemed low risk.
    - Examples: e-CNY (China) and Sand Dollar (Bahamas) can be used with only a mobile number for the lowest tier.
  - Offline capability
    - FPSs generally require at least one party online; offline CBDC solutions exist but not yet technically mature to deploy at scale.
    - Most offline solutions require going “online” at some point for record updates.
  - Programmability
    - Can automate conditional government transfers, enable user spending limits, and support credit assessment via payment data if user consent and privacy standards allow.
- Comparative considerations
  - FPSs and e-money can support some functionality; no current FPS or e-money wraps all elements into one service.
  - CBDC could deliver marginal gains across all elements if designed to incorporate these features.

### Costs, timing, resources, legal and sequencing considerations (Annex II highlights)
- Cost comparisons and examples (preserved exactly)
  - ECB indicated readiness to allocate up to €1.2 billion for private vendors to develop and test multiple digital euro services and features including offline functionality.
  - Central banks in Sub-Saharan Africa provided preliminary quotes of between US$1 million to US$3 million for development of a CBDC and between US$0.8 million and US$3 million for central bank infrastructure.
- Financial cost allocation and funding models
  - Upfront costs: research mainly borne by central bank for CBDC systems and public FPSs.
  - Development phase: likely combination of public and private funding; FPS funding models include central bank funding or participant funding.
  - Operation stage: direct operational costs depend on design and public/private role; central settlement reduces common risks but fixed security and resilience costs remain.
- Service and operational models
  - “Direct”/one-tier CBDC: central bank funds end-to-end operation.
  - “Two-tier” approach: some operational responsibilities and costs distributed to service providers.
  - Central banks may need significant investment in education and awareness to promote adoption (examples: Banco Central do Brasil and Reserve Bank of India for Pix and UPI).
- Cost recovery, subsidies, and infrastructure reuse
  - Fee-based approaches for private FPS operators: joining fees and variable volume fees; seigniorage may offset CBDC costs depending on framework.
  - Some operators/regulators cap or waive end-user fees to promote adoption; some authorities subsidize FPS operating costs (example: UPI).
  - Digital euro experimentation shows technical feasibility of scaling existing infrastructure such as TIPS to process roughly 300 billion retail transactions per year in the euro area.
- Resource constraints and human capital
  - Significant internal capacity required across research, development, operation, oversight.
  - FPSs are more mature and may need less R&D than CBDC.
  - Need for governance, supervisory, oversight, and macro-financial monitoring capacity, especially during introductory phases.
- Legal, supervisory, and oversight constraints
  - Legal mandate determines central bank powers on issuing CBDC and roles around payments.
  - Examples:
    - Banco Central do Brasil mandated participation in Pix and designated low costs for end users in some areas.
    - FedNow set up without strict scheme around end user fees or mandatory participation; private sector choice determines fee outcomes.
  - Supervisory and oversight allocation should align with systemic importance and international standards like the PFMIs.
  - Market conduct supervision and agile competition policy responses may be required; example: UK Digital Markets Unit established in 2021.
- Timing and sequencing
  - BIS survey: over 90 percent of central banks doing work on CBDC, but only 28 percent think a retail CBDC will be issued in their jurisdiction within the next six years.
  - FPS implementation can be faster where preconditions exist:
    - Indonesia’s FPS (BI-FAST) deployed within a 12-month timeframe from procurement to rollout.
    - FedNow took a decade to develop from inception to production due to technical upgrades.
    - UK RTGS service undergoing phased upgrade since 2016.
  - E-money systems can be launched faster with supportive regulation and private sector provision; interoperability remains a challenge in many regions.

### Concluding thoughts: assessment, policy considerations, illustrative strategy
- Assessment of CBDC versus non-CBDC solutions
  - No “one-size-fits-all”; jurisdiction-specific circumstances determine priorities.
  - For certain objectives (payments efficiency, speed), FPSs and e-money may suffice and deserve prioritized short-term action.
  - CBDC offers unique advantages for public access to central bank money, monetary sovereignty, complementarity with private systems, and catalyzing private innovation.
- Policy considerations when crafting a CBDC strategy
  - Assess current performance and future potential of existing systems; consider whether improvements can be achieved via regulation or coordination.
  - Implementation capacity and legal powers strongly influence whether to improve existing systems or pursue CBDC.
  - Benefits and costs evolve with technology and experience; design and usage will alter net costs for public and private sectors.
- Strategic posture and operational approach
  - Payments landscape shifting to multi-instrument, multi-infrastructure world; central banks should be flexible and pragmatic.
  - Resource-constrained central banks should at minimum monitor and engage internationally; assessments should be iterative.
- Illustrative strategy steps (Box 5)
  1. Identify policy priorities and vision for future landscape.
  2. Stocktake existing money and payments landscape.
  3. Understand central bank and regulator powers.
  4. Consider costs and resource factors across research, development, and operation.
  5. Determine a choice set of short- and long-term solutions (identify “optimal” short-term solutions (A), “long-term” solutions (B), and interim steps (C); minimize resources on “ineffective” solutions (D)).
  6. Monitor and evaluate periodically to adapt to external trends and tipping points.
- Practical constraints, timelines, and monitoring
  - Not all central banks can pursue multiple initiatives; capacity and powers constrain feasible solutions.
  - Development and adoption timelines can span multiple years; periodic monitoring and evaluation are essential.
- Social costs and climate considerations
  - Costs distributed among users and providers decomposed into Resource Costs (RC) and Transfer Costs (TC); social costs are the sum of RCs.
  - Comparative cost analysis is difficult due to system differences.
  - Design choices influence cost structures; software-based CBDC cost structure may resemble software-based e-money or mobile FPSs.
  - Climate impacts: carbon footprint primarily determined by infrastructure energy usage and utilization patterns.
    - From Arvidsson and others (2024) conclusions:
      - (i) cash exhibits the highest carbon footprint compared to non-cash payment instruments;
      - (ii) FPSs has lower carbon footprint than e-money (both hardware- and software-based);
      - (iii) both FPSs and e-money systems currently present lower carbon footprints than cash and card payments networks;
      - (iv) each country may yield different results when calculating the total carbon footprint for each system.

### Annex III: how FPS, e-money, and CBDC can promote financial inclusion through payments
- Framework and definition
  - Framework builds on CPMI and World Bank’s PAFI framework; anchored by seven guiding principles.
  - Financial inclusion: ensuring all individuals and businesses, especially vulnerable and underserved groups, have access to suitable financial products and services at an affordable cost, delivered fairly and transparently.
  - Three dimensions: availability, accessibility, and usage; payments and transaction accounts central.
- Availability (ubiquity of payment infrastructure) — findings and examples
  - Ubiquity must cover time and place; operation 365/24/7.
  - Access points include PoS terminal, bank branch, agent banking, PSP agent, ATM, internet, telephone/mobile network.
  - In-person access points crucial to reach unbanked and underbanked and address class, geography, gender, and cultural-trust divides.
  - FPS examples:
    - Brazil’s Pix: 828 member institutions and services used by over 153 million people (nearly 90 percent of adults) as of May 2024.
    - China’s Inter Bank Payments System (IBPS) restricts participants to banks, limiting in-person reach compared to Pix.
  - CBDC examples and reach:
    - Reserve Bank of India mandated UPI merchants to accept digital Rupee payments during its pilot, leveraging 50 million UPI merchants for CBDC transactions.
    - People’s Bank of China e-CNY pilot: over 118 million e-CNY wallets across 17 provinces, with transactions totaling approximately RMB 1.8 trillion as of June 2023(Mu 2023b).
- Accessibility (meeting transaction needs)
  - Payment services must be tailored to actor types and transaction purposes (P2P, P2B, P2G, B2P, G2P).
  - CBDC pilots focus on P2P and PoS; some include offline and programmable features (e-Naira implements an offline transaction using USSD).
  - FPS designs (e.g., Pix) support P2P, P2B, P2G and reverse transactions via aliases or QR codes.
  - E-money features depend on issuers; mobile money used for G2P (example: Ethiopia’s Telebirr pilot).
- Usage (costs and incentives)
  - Affordable cost is key driver of payment usage and inclusion.
  - Fee structures and pricing practices influence adoption:
    - Reserve Bank of India banned any fees to be charged to UPI’s customers or merchants (zero cost per transaction).
    - Banco Central do Brasil prohibits charging Pix’s customers directly but allows merchant fees.
    - Central Bank of Nigeria imposed no transaction fees for e-Naira since its inception in 2021.
    - e-CNY pilot did not incur transaction fees for users and merchants.
    - Card payments typically charge merchants in the United States around 1–3 percent.
  - E-money cost example:
    - Sending KSH 1,000 (US $13.06) through M-Pesa costs US$0.39, which is 27 percent cheaper than using local post office services.
  - Representative numeric/programmatic facts preserved exactly:
    - PAFI task force established in 2014.
    - Operating availability: 365/24/7.
    - Pix membership: 828 member institutions.
    - Pix users: over 153 million people (nearly 90 percent of adults) as of May 2024.
    - e-CNY pilot: over 118 million e-CNY wallets across 17 provinces; transactions totaling approximately RMB 1.8 trillion as of June 2023(Mu 2023b).
    - M-Pesa example: sending KSH 1,000 (US $13.06) costs US$0.39; 27 percent cheaper than local post office.
    - Card merchant fees in the United States: around 1–3 percent.
    - UPI subsidies: INR 200 crore for FY2021/2 and INR 1,500 crore for FY2023/4.
    - e-Naira inception year: 2021.

*Source: ftnea2024006 — Positioning Central Bank Digital Currency in the Payments Landscape — FINTECH NOTES, INTERNATIONAL MONETARY FUND*

### 1. Introduction ........................................................................................................

### 1. Introduction

### Purpose and scope
- The IMF is often approached with the question of how a retail central bank digital currency (CBDC) compares to fast payment systems (FPSs) and e-money, and which to prioritize in the context of constrained resources.
- This paper focuses on comparing retail CBDC—that is, the presence of digital central bank money available to the general public—with FPSs and e-money systems from a payments perspective.
- The paper does not directly compare CBDC with stablecoins, as the latter is not yet widely used in payments.
- The paper does not seek to advocate for CBDC over FPSs or e-money; the choice may not be mutually exclusive and will depend on jurisdictions’ objectives and constraints.

### The evolving payments landscape
- Innovations in payments have proliferated over the past half century at varying speeds across the world, driven by supply-side innovation and user demand for faster, lower-cost transfers.
- E-money solutions and FPSs have been critical in delivering efficiency gains across several regions.
- Emerging private digital developments, including privately issued crypto assets and stablecoins, have increased focus on the role of a public solution such as a retail CBDC.
- Digitalization is pointing toward a multi-instrument, multi-infrastructure landscape where users’ behavior is altering the use and role of cash.

### Distinctive features and complementarities
- CBDC’s distinguishing value lies in its property as public money in an increasingly digitalized economy.
- Fundamental differences:
  - CBDCs are first and foremost a form of central bank money and a public payment solution that can preserve the presence and choice to use publicly issued money.
  - FPSs are payment arrangements to smooth and accelerate the transfer of private liabilities.
  - E-money are private liabilities which act as an alternative to bank deposits with a lower access threshold in many markets.
- CBDC systems are more likely to be complements to other systems, bolstering trust in money and payments by preserving choice and fostering interoperability between public and private money and payment systems.
- Depending on design and supporting policies, CBDC, FPSs, and e-money could all provide instantaneous and efficient payments, potentially lowering the cost of payments and supporting financial inclusion.

### Strategic considerations for central banks
- A holistic exploration of retail CBDC requires a comprehensive assessment of legal, macro-financial, and operational considerations.
- Central banks should address existing pain points while preserving capacity to adapt to future changes in the payment landscape.
- Central banks will need to understand both existing and future needs and create a strategy that at minimum allows them to monitor trends and core benefits of multiple solutions as developments occur.
- Some central banks are pursuing CBDC explorations alongside improvements to the existing landscape; others may opt to be observers due to various constraints.
- Central banks face a trade-off between what is most desirable from a policy perspective and what is practically feasible to implement.

### Potential roles of CBDC exploration
- CBDC exploration could catalyze further development of FPSs and e-money systems by:
  - Facilitating a higher degree of interoperability of the payments landscape if designed appropriately and implemented in partnership with the private sector.
  - Supporting research that develops interim improvements to existing systems and incentivizing private sector coordination and innovation.
- Private sector developments—including tokenized deposits and stablecoins—may need to be considered within a landscape assessment, even if not the focus of this paper.

### Constraints that influence strategy
- Key constraints beyond capacity and resources are legal, regulatory, supervisory, and governance considerations.
- Both CBDC systems and publicly owned FPSs require high levels of public sector involvement and may have similar types of development costs.
- A jurisdiction’s mandate and ability to apply powers around payments may determine how well a system can fulfill its objectives.
- Central banks must balance horizon scanning and policy analysis with practical considerations of where to invest time and resources.

### Structure of the paper
- Section II considers the similarities and differences between CBDC, FPSs and e-money.
- Section III places the discussion of each system into the context of the evolving payment landscape and central banks objectives.
- Section IV explores the strategies currently pursued by central banks and considers the practical constraints that factor into a strategy.
- Section V summarizes the takeaways of the paper to offer an illustrative strategy that central banks could undertake to support the development of the payments landscape.

*Source: ftnea2024006 - 1. Introduction*

### 2.    Understanding Retail Payment Systems

### 2.    Understanding Retail Payment Systems

### Stylized models of retail payment systems
- Core components (Figure 1): instrument, infrastructure, and scheme.
  - Instrument: the liability (money) of a specific issuer (e.g., bank deposits for traditional bank account payments).
  - Infrastructure: hardware and software technologies facilitating transfer between users.
  - Scheme: set of rules, practices, and standards agreed between participants to execute payment transactions; coverage can vary across settings.
- E-money systems
  - Instrument: e-money—electronically-stored money typically issued by nonbank financial institutions (an e-money institution) and often backed by bank deposits.
  - Typical structure: historically “closed-loop” networks facilitating transfers between users in a single network (predominant focus of this paper is software-based, closed-loop e-money).
  - Infrastructure: secure digital wallets and communication networks connecting users, merchants, and the issuer.
  - Scheme: in closed-loop systems, typically focused on the customer relationship between issuer and customers; interoperable e-money systems have more developed schemes covering practices, standards, and protocols agreed between participating issuers.
- Fast Payment Systems (FPSs)
  - Focus: infrastructure and scheme rather than the instrument; designed to bridge transfers (at speed) between different private issuers.
  - Instrument: the liability transferred between retail end users would be bank deposits or e-money (instruments).
  - Infrastructure: communication network connecting users, merchants, and issuers in real time, plus a settlement service; infrastructure can be owned and operated by central banks, private entities, or both.
  - Settlement: typically happens in a secondary system—either a private settlement system or often at the central bank using participants’ central bank funds.
  - Scheme scope: varies from covering settlement service roles to comprehensive end-to-end transaction rules; schemes can be created by private or public sector, or both.
- Central Bank Digital Currency (CBDC) systems
  - Instrument: CBDC is central bank money—a liability on the central bank balance sheet, denominated in the official unit of account, offering a direct relationship between issuer and owner balance sheets.
  - Infrastructure: transferred over an infrastructure that will be (in part or fully) publicly owned and operated.
  - Scheme: end-user encompassing scheme rules with involvement of the central bank; design variances possible and no clear prevailing model given few retail CBDC systems operate today.

### Similarities and differences (summary of key features)
- Core difference: nature of the instrument.
  - CBDC systems transfer central bank liabilities for end users.
  - E-money systems transfer privately issued e-money.
  - FPSs are designed to transfer liabilities users hold from different private issuers (commercial banks or e-money issuers).
- Common feature: funds transferred are available to the payee instantly, in a matter of seconds, to use for other purposes.
  - Note: some FPS implementations are “near immediate” with slight delays up to minutes, and even a couple of hours.
- Settlement models:
  - CBDC systems and e-money networks settle on a “real-time gross settlement” (RTGS) basis—transaction by transaction.
  - Many FPSs operate on RTGS, but many also use “deferred net settlement” (DNS)—periodic batches on a multilateral net basis.
- Risk profiles:
  - All three systems face operational and legal risks.
  - Credit risk:
    - Present in FPSs and e-money networks because of the private nature of the liabilities transferred.
    - Not present in CBDC systems (CBDC considered free from credit risk).
  - Liquidity risk:
    - Can arise during funding and defunding in CBDC and e-money systems, particularly at points of interoperability (e.g., sudden demand for redemption of e-money if insufficient bank deposits held).
    - Prevalent in FPSs because PSPs require liquidity for settlement.
- Ownership of infrastructure and scheme:
  - CBDC: infrastructure and scheme likely owned by the central bank.
  - FPSs: infrastructure and scheme could be public, private, or jointly owned.
  - E-money systems: infrastructure and scheme privately owned.
- Supervision and regulation: in all three systems, the public sector likely remains the supervisor and regulator.
- Table 1. Payment System Features (as presented)
  - Columns: CBDC SYSTEMS | Fast Payment Systems | E-Money Systems
  - Instrument (Liabilities being transferred for end users (issuer)):
    - CBDC SYSTEMS: CBDC (central bank)
    - Fast Payment Systems: Commercial bank money or e-money (from private issuers)—the most common form is a “credit transfer”
    - E-Money Systems: E-money (of a specific private issuer)
  - Infrastructure and scheme (Availability of funds to payee):
    - CBDC SYSTEMS: Instant
    - Fast Payment Systems: Instant (or near immediate)
    - E-Money Systems: Instant
  - Infrastructure and scheme (Settlement):
    - CBDC SYSTEMS: Real-time gross settlement
    - Fast Payment Systems: Real-time gross settlement or deferred net settlement
    - E-Money Systems: Real-time “on us settlement”
  - Infrastructure and scheme (Risks in system):
    - CBDC SYSTEMS: Operational and legal risks present. No credit risk. Liquidity risks may arise during funding and defunding
    - Fast Payment Systems: Operational, legal, credit, and liquidity risks present
    - E-Money Systems: Operational, legal, and credit risks present. Liquidity risks may arise during funding and defunding
  - Infrastructure and scheme (Ownership):
    - CBDC SYSTEMS: Infrastructure and scheme likely owned by the central bank
    - Fast Payment Systems: Infrastructure and scheme could be public, private, or jointly owned
    - E-Money Systems: Infrastructure and scheme privately owned
  - Note: For e-money systems, a software-based, closed-loop model is assumed.
- Additional observations:
  - Credit risk in an FPS normally does not arise between the payer and payee but may exist between their PSPs; settlement timing (real time vs deferred) influences whether PSP-to-PSP credit risk arises.
  - Hardware-based e-money networks may not have instant functionality and are not the focus of this note.
  - Interoperable e-money payments can settle via RTGS or DNS.

### Closed loops versus interoperable payment systems (Box 1)
- Closed-loop systems
  - Definition: the money issuer facilitates transactions within a self-contained network; instrument usable only within its proprietary network; merchant and consumer must be registered with the issuer.
  - Characteristics: act as a “single accounting ledger”; minimize credit and settlement risk since the claim is always with the same issuer; processing can occur at minimum to no cost to the issuer.
  - Tend to scale from specific unique use cases where they have a comparative advantage; can favor monopolistic tendencies.
- Interoperable systems
  - Definition: facilitate transactions across networks and issuers; money issued by one entity accepted by various merchants irrespective of affiliation.
  - Characteristics: enable flexibility for consumers and foster interconnected, competitive financial ecosystems; require more sophisticated regulatory and operational frameworks to ensure seamless and secure cross-network transactions.
- Mixed cases and examples:
  - Some interoperable systems treat some payments as closed-loop (e.g., intrabank “on us” payments).
  - Domestic CBDC-to-CBDC transactions would be closed-loop, though CBDC can be designed to be interoperable with other forms of money.
  - Example references in text: card schemes as interoperable systems; bank deposit “on us” payments as closed-loop.

*Source: FINTECH NOTES — Positioning Central Bank Digital Currency in the Payments Landscape (Section 2).*

### Box 2. Cash Developments in Sweden and the Case for CBDC

### Box 2. Cash Developments in Sweden and the Case for CBDC

### Sweden: cash decline, policy response, and e-krona exploration
- Card payments dominate in-store payments in Sweden, with cash usage and availability of cash services declining.
- There is growing awareness of cash’s importance, particularly in a crisis situation when current digital payments might become unavailable.
- The Riksbank considers state intervention necessary to maintain payment access for all and to preserve crisis resilience.
- To prevent cash from becoming unusable in the near term, the Riksbank has urged immediate legislative action on its acceptance.
- The Riksbank has been researching and exploring a CBDC—e-krona—since 2017 as part of a long-term strategy to ensure access to useful and attractive forms of central bank money; no decision has been taken on issuance yet.
- As the economy digitalizes, the Riksbank notes that new forms of money will be needed to support universal payment capabilities and to enhance resilience in the payments landscape (Sveriges Riksbank 2024).

### Payment landscape risks and private digital monies
- Privately issued crypto assets have mainly behaved as tools for speculation and have not gained widespread acceptance as payment instruments.
- Stablecoins aspire to offer a consistent value and could become more viable for everyday payments with technological advances and price stabilization.
- Preliminary data suggest that in emerging and developing market economies, stablecoins are being used in a limited capacity for cross-border transactions and remittances (FSB 2024).
- There is a perceived preference for US dollar-denominated stablecoins as a store of value in countries with high inflation, currency devaluation, or the presence of capital flow measures.
- If crypto assets or stablecoins gain significant adoption, they could serve as alternative units of account in a jurisdiction, undermining the ability of central banks to conduct monetary policy.
- Thousands of new digital “currencies” have been introduced; though most have failed, a viable formula may eventually be discovered (Rivadeneyra, Hendry, and García 2024).

### Foreign CBDCs and policy implications
- Easy access to foreign CBDCs could significantly influence a country’s evaluation of its payment ecosystem.
- The majority of central banks globally are exploring CBDCs in some way.
- Compared to stablecoins, CBDCs' status as central bank instruments and higher regulatory certainty may make them attractive to hold and use for everyday payments.
- The presence of multiple currencies within a single jurisdiction introduces complexities such as currency substitution and volatile capital flows.
- Small open economies must assess opportunities and risks from larger neighboring jurisdictions issuing a CBDC (for example, analysis of the digital euro’s possible impact on Sweden is noted).

### How payment systems meet central bank objectives
- Key central bank objectives linked to payments: financial inclusion; payment efficiency, competition, and resilience; public access to central bank money.
- Different systems (FPSs, e-money, CBDC) can contribute to these objectives through different channels.

Financial inclusion
- FPSs positively correlate with financial inclusion by providing instant availability of funds and mimicking cash.
- E-money promotes financial inclusion by enabling users without bank accounts to access payment services.
- CBDC can have similar benefits to e-money as an entry point to the wider financial system and can be designed to cater to underserved populations.
- Significant barriers remain: technology, digital literacy, and distrust of the financial system.

Efficiency
- Common efficiency measures: (1) time from payment initiation to availability of funds to the payee, and (2) service availability.
- All three systems can provide instant payments and 24/7 service availability.
- Pricing strategies matter: central banks can set or cap CBDC fees; a survey found most central banks believe CBDC should be offered without fees to individuals, though fees might apply for value-added services.
- Cash management is expensive; a CBDC designed as “digital cash” could be more effective in reducing cash management costs, and some countries see CBDC as a solution to reduce cash use and promote digitalization (examples: Bahamas, India, Jamaica, Nigeria).

Competition
- Multiple payment solutions support competition and innovation; network effects make payments susceptible to monopolistic tendencies.
- Central banks can promote competition via regulation, public infrastructure/schemes, and enabling interoperability.
- A CBDC can lower barriers to entry for nonbank PSPs by providing market-neutral public infrastructure and a public instrument for interoperability.
- If not carefully designed, a CBDC could crowd out private innovation in payments and financial intermediation.
- Private FPSs can restrict market participation; based on CPMI (2021), around 30 percent are more restrictive compared to the domestic RTGS system.
- E-money markets can be highly concentrated; closed-loop e-money systems have prompted mandates or facilitation of interoperability in some jurisdictions.

Resilience
- Multiple payment alternatives can enhance resilience through redundancy.
- CBDCs, operating outside existing rails, are viewed as providing additional resilience and can strengthen operational and cyber resilience.
- A well-designed public CBDC could guard against market disruption from underinvestment in private-sector resilience or private actors exiting the market.
- This is particularly relevant in smaller markets served by few private solutions.

Public access to central bank money
- FPSs and e-money networks cannot alone ensure public access to central bank money because they transfer privately issued money between users.
- Access to retail public central bank money provides an alternative to privately issued money and acts as a market-discipline mechanism preserving the uniformity of money.
- Ensuring public access to central bank money helps preserve monetary sovereignty and supports monetary and financial stability.
- While CBDC can ensure public access to central bank money, marginalization of cash can negatively affect people suffering from digital exclusion; central banks generally consider CBDC as a complement to cash and continue to supply cash as long as there is demand.

*Source: Box 2. Cash Developments in Sweden and the Case for CBDC (ftnea2024006).*

### Box 3. Design Choices for CBDC That Could Support Financial Inclusion

### Box 3. Design Choices for CBDC That Could Support Financial Inclusion

### Role of payments in financial inclusion
- Payments serve as a gateway to wider services, enabling funds transfer between transaction accounts and supporting financial services such as savings, loans, and credit lines.
- To support financial inclusion, the payment instrument provided should always be available and the infrastructure and services should be accessible and usable, at an affordable cost.

### Four areas where CBDC systems may offer incremental benefits for financial inclusion
- Immediate settlement and increased trust
  - As a form of public money like cash, CBDC may be attractive to hold by the "willingly excluded" (who may distrust existing private financial institutions).
  - The ability to receive funds immediately can support those who rely on immediate cashflow.
  - About a quarter of the unbanked population cited distrust in the banking sector as a reason for not having a bank account in a sample analyzed by Demirgüç‑Kunt and others (2022). Where CBDCs are distributed by the banking sector it may face similar challenges. In some jurisdictions, CBDC may conversely face challenges in gaining trust due to privacy concerns.

- Universal access
  - Central banks could seek to specifically distribute CBDC through providers who can reach underserved or unbanked markets.
  - Barriers include geography, lack of inclusive design, and lack of identity documentation.
  - To tackle geography, nonbanks such as telecoms and post offices with wide networks could distribute CBDC without needing to qualify to undertake financial intermediation.
  - To ensure inclusive design for different abilities, the central bank could procure specialist providers to deliver user interfaces tailored to specific needs.
  - For identity challenges, a wallet with lower identity requirement for very small value payments could be offered if they are deemed low risk.
  - Such wallets could potentially allow users to incrementally provide documentation to enhance wallet functionality.
  - Footnotes/examples preserved: Both the e-CNY (China) and Sand Dollar (Bahamas) can, for example, be used with only a mobile number for the lowest tier.

- Offline capability
  - Although e-money systems can support some offline functionality, FPSs today generally require at least one party to be online to effect the funds transfer on an immediate basis or otherwise need to deploy heightened risk management measures.
  - Offline solutions for CBDC do exist, but none are yet technically mature enough to be deployed at scale. In the long term, such functionality may provide a key advantage.
  - Most offline digital solutions in place today require a user/payment actor going “online” at some point so records are updated.

- Programmability
  - CBDC may speed up/automate the disbursement of conditional government transfers, improving the cashflow of underbanked citizens.
  - User-implemented programmability could support financial confidence by allowing users to set their own spending limits.
  - A user’s payments data may provide useful information about their creditworthiness, which can be used to enhance access to credit.
  - Payment data of one user could be used to create a data profile of how a person spends their money, providing an accurate picture of their habits and potential behaviors which could be used to evidence their creditworthiness.
  - If users were given the choice on how to share their data, this may support better access to credit services, subject to prevailing standards on data use and privacy.
  - See Murphy and others (2024) for considerations on CBDC and data use.

### Comparative and aggregate considerations
- FPSs and e-money systems could support some of the functionality discussed; however, no current FPS or e-money wraps all elements into one single service.
- CBDC systems, if designed to incorporate these elements, could deliver marginal gains across all elements to provide an aggregate advantage.
- See Lannquist and Tan (2023) on CBDC and financial inclusion and Annex III on payments systems and financial inclusion.

*Source: FINTECH NOTES — Positioning Central Bank Digital Currency in the Payments Landscape, INTERNATIONAL MONETARY FUND.*

### Annex II expands further on cost considerations of retail payment systems. As discussed in Section III the central bank 

### Annex II expands further on cost considerations of retail payment systems. As discussed in Section III the central bank

### Cost comparisons and examples
- ECB indicated readiness to allocate up to €1.2 billion for private vendors to develop and test multiple digital euro services and features including offline functionality.
- Central banks in Sub-Saharan Africa provided preliminary quotes of between US$1 million to US$3 million for development of a CBDC and between US$0.8 million and US$3 million for central bank infrastructure.
- These quoted figures reflect feedback from a few central banks and do not account for additional costs such as bolstering national infrastructure (for example, internet and mobile connectivity).

### Financial cost allocation and funding models
- Central banks should estimate a rough cost allocation between each phase of implementation to align with capacity and identify where private sector investment is necessary.
- Upfront costs:
  - Research for CBDC systems and (public) FPSs will be primarily borne by the central bank.
- Development phase:
  - Likely a combination of public and private funding.
  - FPS development funding models typically follow: (i) central bank funds system development, or (ii) participants fund it through monetary contributions via operator ownership or banking associations.
- Operation stage:
  - Direct operational costs vary by design and public/private role allocation.
  - When money is settled on central bank infrastructure, direct operational costs are a function of fixed maintenance costs and variable usage costs.
  - CBDC-to-CBDC payments should be able to operate at lower cost due to reduction or minimization of common risks (credit, settlement, liquidity) but must be weighed against fixed costs of maintaining high security and operational and cyber resilience.

### Service models, distribution of operational costs, and promotion
- Service model implications:
  - “Direct” / one-tier CBDC model: central bank funds end-to-end operation of CBDC system.
  - “Two-tier” approach: some operational responsibilities and costs distributed to service providers.
- Central bank support for adoption:
  - Central banks may need to invest in education and awareness; promotional and support measures can be financially significant.
  - Banco Central do Brasil and the Reserve Bank of India invested significant resources in promoting Pix and UPI platforms.
  - Adoption strategies for CBDC projects will require comparable promotion and awareness efforts.

### Cost recovery, subsidies, and reusing infrastructure
- Cost recovery strategies:
  - Operators in privately owned FPSs often use fee-based approaches: participant joining fees proportional to institution size and variable fees tied to transaction volumes; similar approaches could apply to CBDC.
  - Seigniorage may help offset CBDC operation costs depending on central bank framework.
  - To promote adoption, some FPS operators or regulators cap end user transaction fees and/or waive them for some transactions (for example, low-value transactions).
  - Some central banks/national authorities subsidize FPS operating costs to reduce end-user costs (for example, UPI).
  - No single cost recovery or business model has yet been identified for CBDC systems.
- Reusing or sharing infrastructure:
  - Possibility to reuse FPS infrastructure for CBDC is viable in some cases.
  - Digital euro experimentation shows technical feasibility of scaling existing infrastructure such as TIPS to process roughly 300 billion retail transactions carried out in the euro area each year.
  - Eurosystem TARGET Services use a modular design (T2, T2S, TIPS, ECMS); modular separation aids tailoring and resilience.
  - Feasibility of reusing current infrastructure depends on prioritization of design and functional requirements and desirable use cases.

### Resource constraints: human capital and institutional capacity
- Significant internal capacity required for research, development, operation, and oversight of CBDCs.
- Both policy and technical resources needed; multiple initiatives stretch finite expertise.
- Public FPSs require institutional capacity; FPSs as a more mature technology likely need less R&D than CBDC.
- Where central banks have had a smaller role in retail payments, time to build capacity and expertise matters (high volume-low value systems vs traditional RTGS high value-low volume).
- Operational roles span governance, supervisory, oversight, and macro-financial monitoring, especially in introductory phases or stress periods.
- Even if day-to-day involvement in private e-money systems is minimal, resourcing for regulatory and supervisory/oversight capacity is necessary.
- Ensuring staff skills or access to external expertise is important for smoothing implementation and operation.

### Legal, supervisory, and oversight constraints
- Legal mandate determines the central bank’s right to issue CBDC as currency and powers around payments, operator/overseer roles, mandate provision, and economic regulation.
- Central banks have a duty to ensure smooth functioning of payment systems and apply powers to varying degrees.
  - Example: Banco Central do Brasil mandated participation in Pix and designated low costs for end users in some areas.
  - Example: FedNow set up without strict scheme around end user fees or mandatory participation; private sector choice determines fee outcomes.
- Scheme and governance refinement in development phase is useful; example: digital euro scheme Rulebook Development Group.
- Supervisory and oversight allocation should align with systemic importance and international standards like the PFMIs.
- Prudential regulation and licensing/supervision/oversight may be required for systemic e-money systems.
- Market conduct supervision/oversight is crucial across all systems.
- Digitalization increases case for economic regulation and competition policy; competition effects are hard to determine ex-ante and difficult to alter once established.
- Authorities may need agile competition policy responses; example: UK Digital Markets Unit established in 2021 with mandates addressing Strategic Market Status.

### Timing, sequencing, and strategic approaches
- CBDC development timeline:
  - Developing a CBDC from scratch can take significant time; many central banks are taking time to consider approaches and designs.
  - BIS survey: over 90 percent of central banks are doing work on CBDC, but only 28 percent think a retail CBDC will be issued in their jurisdiction within the next six years.
  - Challenges include unresolved design issues such as offline functionality.
- FPS implementation speed:
  - FPS practical implementation can be faster than CBDC where preconditions exist (established payment networks, strong central bank infrastructures).
  - Example: Indonesia’s FPS (BI-FAST) deployed within a 12-month timeframe from procurement to rollout.
  - FedNow (United States) took a decade to develop from inception to production in part due to technical upgrades between private entities and central bank infrastructure.
  - UK RTGS service has been undergoing a phased “next-generation” upgrade since 2016.
- E-money systems:
  - Launching e-money systems can be expedited with supportive regulatory environments and private sector provision; central bank can coordinate or support (for example, national switch for interoperability).
  - In sub-Saharan Africa, lack of domestic interoperability between mobile money systems is a challenge; many central banks are exploring a national switch.
- Interactions between systems:
  - Central banks should analyze how CBDC introduction complements or cannibalizes existing FPSs and whether an FPS impedes long-term CBDC implementation by diverting resources.
  - An incumbent FPS could act as an interoperability mechanism between CBDC and private instruments.
  - Implementing several systems is resource-demanding and may require sequencing that pushes CBDC implementation further down the road.
- Strategic options by resource endowment:
  - Resource-rich central banks can work on multiple solutions in parallel, building readiness and potentially influencing standards and best practice.
  - Resource-constrained central banks can adopt “wait and watch” to learn from others and reduce reputational risks from early mistakes, balancing risks of falling behind.
- Need for flexibility:
  - Periodic assessment of landscape and objectives recommended due to evolving technologies (for example, potential maturation of offline functionality) and emergent risks (for example, post-quantum computing).
  - Regular reassessment can affirm what is working and highlight emergent issues or tipping points.

*FINTECH NOTES — Annex II, Positioning Central Bank Digital Currency in the Payments Landscape — INTERNATIONAL MONETARY FUND*

### 5.    Concluding Thoughts

### 5.    Concluding Thoughts

### Assessment of CBDC versus non-CBDC solutions
- Jurisdiction-specific circumstances determine whether to prioritize CBDC exploration; there is no “one-size-fits-all” strategy.
- CBDC remains a novel innovation and requires further evidence and analysis before a general approach can be formed.
- For certain objectives, there may be little difference between outcomes achieved by a CBDC system, FPS, or e-money.
- Speed is a core design feature of FPSs and e-money networks; these systems may be able to deliver strong enough improvements to payments efficiency to warrant prioritized action in the short term.
- For other objectives, FPSs and e-money systems may fall short of what CBDC systems can be expected to achieve, notably:
  - Access to central bank money and monetary sovereignty because of CBDC’s nature as public money.
  - Complementarity with private payment systems through bolstering trust and confidence.
  - Catalyzing private sector innovation through CBDC research and exploration.

### Policy considerations when crafting a CBDC strategy
- Central banks should assess the current performance and future potential of existing non-CBDC systems, including whether:
  - Existing systems are struggling to gain adoption or their benefits (for example, lower costs) are not being realized and passed on to target users.
  - There is potential to improve the current landscape through better regulation or coordination of the private sector.
  - A new system or provision of service is required from the central bank itself.
- Implementation capacity—including central bank powers and private sector capacity—will strongly influence whether to encourage improvements to existing systems or pursue CBDC.
- Practical capacity constraints may limit the ability to implement change today even with a clear long-term vision; systems with well-trodden development paths can still take a few years to develop, launch, and be adopted (Frost and others 2024).
- Benefits and costs may change over time with technological development and increasing practical experience; design configuration and usage will alter net costs for public and private sectors and social costs.
- Long-term sustainability of any chosen solution remains important.

### Strategic posture and operational approach
- The payments landscape is shifting toward a multi-instrument, multi-infrastructure world, requiring central banks to be flexible and pragmatic in their approach to CBDC.
- Resource-constrained central banks should at minimum invest time in monitoring and engaging internationally on payment system innovation given the pace of developments.
- Assessments should be iterative and keep one eye toward the future.
- Resourcing an iterative approach will position the central bank to identify, plan, react, and drive developments for the domestic payments landscape.

### Illustrative Strategy for the Central Bank (Box 5)
Central banks may benefit from undertaking these steps regardless of which solutions are pursued:
1. Identify policy priorities and vision for future landscape. What are the target objectives? What are the current pain points versus proactive vision? Define short- and long-term goals.
2. Stocktake the existing money and payments landscape. How do they meet desired objectives today? Could they be improved or upgraded? Could further supervision or oversight help? Is more direct action needed? What is the capacity of the private sector?
3. Understand central bank and regulator powers. What is the central bank mandate and what are the objectives of the central bank and regulator? How do they affect powers around supervision, oversight, and regulation of instrument, infrastructure, and scheme? How well do current frameworks perform?
4. Consider costs and resource factors for different solutions. What are the possible financial and non-financial costs between the research, development, and operation stage? What preconditions are important? Can costs between initiatives be combined?
5. Determine a choice set of solutions in the short and long term. To manage the trade-off that the desired solution (to meet all policy objectives) is difficult to implement, central banks should understand the interim steps that could be taken (see Figure 3). Some central banks may find for their prioritized objectives, that there is a solution that can achieve these objectives and is simple to implement—an “optimal” solution (A). More likely, central banks will identify a “long-term” solution (B) to target which requires much more preparation and analysis. Central banks may therefore define “short-term” action(s) which complement(s) and build(s) toward this (C) such as improved regulation or coordination of existing systems. Central banks may wish to minimize resources on “ineffective” solutions (D) to a monitoring role.
6. Monitor and evaluate the previous steps periodically. External trends may shift the priorities of the central bank and create new tipping points for digital payments. Keeping the flexibility and resources to evaluate this strategy will position the central bank for a long-term vision.

### Practical constraints, timelines, and monitoring
- Not all central banks can pursue multiple initiatives at once.
- Implementation capacity and current powers constrain which solutions central banks can implement without changes to mandates or legal authority.
- Even when a central bank has a long-term vision, practical development and adoption timelines can span multiple years (Frost and others 2024).
- Monitoring and periodic evaluation are essential because external trends can shift priorities and create new tipping points.

### Social costs and climate considerations
- Retail payment system costs are distributed among users (consumers, businesses, government) and providers (central banks, PSPs, PIPs) and include:
  - User fees (consumers’ or businesses’ RC and TC).
  - Central bank budget (central bank’s RC and TC to establish and operate systems).
  - Social costs (sum of all RCs, excluding TCs to avoid double counting).
- Using the World Bank framework, costs are decomposed into Resource Costs (RC) and Transfer Costs (TC) for each stakeholder, with social costs computed as the sum of RCs across stakeholders.
- Comparative cost analysis across systems is difficult because systems are distinct and influenced by infrastructure, user base, and regulatory environment.
- Design choices influence cost structures; for example:
  - A software-based CBDC would have a cost structure more similar to software-based e-money or mobile-based FPSs.
  - A CBDC with physical card alternatives would need to include cost structure elements present in card-based payments.
  - Central banks may bear costs that PSPs bear in private FPSs.
- Climate impact considerations:
  - Evidence suggests the carbon footprint of retail payments is primarily determined by the energy usage of infrastructure, particularly data centers, and the utilization of payment instruments.
  - From Arvidsson and others (2024), conclusions include:
    - (i) cash exhibits the highest carbon footprint compared to non-cash payment instruments;
    - (ii) FPSs has lower carbon footprint than e-money (both hardware- and software-based);
    - (iii) both FPSs and e-money systems currently present lower carbon footprints than cash and card payments networks;
    - (iv) each country may yield different results when calculating the total carbon footprint for each system, depending on usage patterns.
  - Discussions on a green CBDC are at an early stage and currently focus on technology implementation.

*Source: ftnea2024006 - 5.    Concluding Thoughts*

### Annex III .  How FPS, E-Money, and CBDC Can

### Annex III .  How FPS, E-Money, and CBDC Can Promote Financial Inclusion through Payments

### Framework and definition
- Builds on CPMI and World Bank’s PAFI framework (task force established in 2014) adapted by the authors; framework anchored by seven guiding principles.
- Financial inclusion defined as the process of ensuring that all individuals and businesses, especially vulnerable and underserved groups, have access to suitable financial products and services at an affordable cost, delivered in a fair and transparent manner.
- Three key dimensions of financial inclusion: availability, accessibility, and usage of financial services.
- Payments and the transaction account are central: objective is to leverage transaction accounts for payments, storing value, and serving as gateways to other financial services (CPMI and World Bank 2020).

### Availability (ubiquity of payment infrastructure)
Findings:
- Ubiquity must cover time (whenever needed) and place (wherever needed).
- In time dimension, FPS, e-money, and CBDC operate 365/24/7.
- Access points differ by system design; access points classified as in-person and remote (Table 6 examples include PoS terminal, bank branch, agent banking, PSP agent, ATM, internet, telephone/mobile phone network).
- In-person access points are crucial to reach the unbanked and underbanked and address four consumer divides: class, geography, gender, and cultural-trust divides.
- FPSs can leverage existing financial and payment landscape to extend coverage; participation rules matter:
  - Brazil’s Pix: 828 member institutions and services used by over 153 million people (nearly 90 percent of adults) as of May 2024.
  - China’s Inter Bank Payments System (IBPS) restricts participants to banks, limiting in-person reach compared to Pix.
  - Cohort onboarding of FPS participants is a possible policy approach.
- E-money systems often have limited access points due to interoperability issues; networks commonly cover PoS and mobile money agents within their ecosystem. Successes (Alipay, WeChat Pay, M-Pesa) rely on strong network externalities but have been limited in replication elsewhere.
- CBDCs have potential for widespread reach if accompanied by robust policies and design; can leverage banks, NBFIs, PSPs (telecoms, post offices), but require central bank commitment:
  - Reserve Bank of India mandated UPI merchants to accept digital Rupee payments during its pilot, leveraging 50 million UPI merchants for CBDC transactions.
  - People’s Bank of China e-CNY pilot: over 118 million e-CNY wallets across 17 provinces, with transactions totaling approximately RMB 1.8 trillion as of June 2023(Mu 2023b).

### Accessibility (meeting transaction needs)
Findings:
- Payment services must be tailored to transaction purposes and actor types (person, business, government).
- Types of retail payments relevant to inclusion include P2P, P2B, P2G, B2P, and G2P (examples in Table 7: remittances, PoS purchases, taxes, payrolls, social benefit transfers).
- Poorly designed payment services are barriers to adoption; individuals without transaction accounts may only need P2P due to lower/variable incomes or geographic isolation.
- CBDCs have high potential to meet diverse user needs; implemented use cases to date primarily focus on P2P transfers/remittances and PoS payments (examples: e-Naira and Sand Dollar).
- Some CBDC pilots include offline transactions and programmable money; e-Naira implements an offline transaction using USSD.51
- FPS designs (e.g., Pix) can support P2P, P2B, P2G, and reverse transactions using aliases or QR codes.
- E-money feature sets depend on private issuers; common features include P2P and PoS. Mobile money is increasingly used for G2P (example: Ethiopia’s Telebirr pilot), though challenges include poor connectivity and limited electricity access.

### Usage (costs and incentives)
Findings:
- Affordable cost is a key driver of payment usage; low costs encourage usage and support financial inclusion.52
- Retail payment costs split into fixed and indirect costs:
  - Fixed costs: opening/maintaining transaction accounts; often charged as periodic fees (monthly); may include basic services or waived conditional on minimum balances.
  - Indirect costs: geographic coverage limitations raise user transportation/time costs, deterring account usage; electronic payments can reduce these indirect costs.
- Market structure matters: limited competition and high entry barriers raise PSP average costs, increasing fees and reducing inclusion.
- Pricing practices:
  - FPS: central banks can impose zero/low pricing to drive adoption:
    - Reserve Bank of India banned any fees to be charged to UPI’s customers or merchants, making UPI services zero cost (per transaction) to its users.53
    - Banco Central do Brasil prohibits charging Pix’s customers directly but allows merchant fees (no cap).
  - CBDC: zero transaction fees common in early phases:
    - Central Bank of Nigeria imposed no transaction fees for e-Naira since its inception in 2021.
    - e-CNY pilot did not incur transaction fees for users and merchants.
    - Card payments typically charge merchants in the United States around 1–3 percent (Congressional Research Service 2021).
  - E-money: fees largely determined by issuers; economies of scale and network externalities influence cost-efficiency:
    - Sending KSH 1,000 (US $13.06) through M-Pesa costs US$0.39, which is 27 percent cheaper than using local post office services.
    - E-money systems lacking scale can be costly for users.
- Sustainability concern: business models where PSPs alone bear costs may be unsustainable; new cost-sharing models are needed for long-term CBDC viability.

### Representative numeric and programmatic facts (preserved exactly)
- PAFI task force established in 2014.
- Operating availability: 365/24/7.
- Pix membership: 828 member institutions.
- Pix users: over 153 million people (nearly 90 percent of adults) as of May 2024.
- e-CNY pilot: over 118 million e-CNY wallets across 17 provinces; transactions totaling approximately RMB 1.8 trillion as of June 2023(Mu 2023b).
- M-Pesa example: sending KSH 1,000 (US $13.06) costs US$0.39; 27 percent cheaper than local post office.
- Card merchant fees in the United States: around 1–3 percent.
- UPI subsidies: INR 200 crore for FY2021/2 and INR 1,500 crore for FY2023/4.
- e-Naira inception year: 2021.

*Elaboration by the Authors of PAFI framework, as presented in Annex III of the source document.*

### 2022. European Central Bank, Frankfurt am Main, Germany.

### Positioning Central Bank Digital Currency in the Payments Landscape — NOTE/2024/006

### References cited in the excerpt
- 2022. European Central Bank, Frankfurt am Main, Germany.
- Lannquist, Ashley, and Brandon Tan. 2023. “Central Bank Digital Currency’s Role in Promoting Financial Inclusion.” IMF Fintech Note 2023/011, International Monetary Fund, Washington, DC.
- Maurer, Tim, and Arthur Nelson. 2021. “The Global Cyber Threat.” Finance & Development 58 (1): 24–27. International Monetary Fund, Washington, DC.
- McAndrews, James J. 1997. “Network Issues and Payment Systems.” Business Review, November. Federal Reserve Bank of Philadelphia, Philadelphia, Pennsylvania.
- Mu, Changchun. 2023a. “Theories and Practice of Exploring China’s e-CNY.” In Data, Digitalization, Decentralized Finance and Central Bank Digital Currencies: The Future of Banking and Money, edited by A. Dombret and P. Kenadjian. Berlin, Boston: De Gruyter, pp. 179–90.
- Mu, Changchun. 2023b. “E-CNY: Universal Payment Instrument.” Presentation at the IMF Conference on Central Bank Digital Currency: Emerging Good Practices, November 2023 at the IMF – Singapore Regional Training Institute.
- Murphy, Kieran, Sun Tao, Yong Sarah Zhou, Natsuki Tsuda, Nicolas Zhang, Victor Budau, Frankosiligi Solomon, Kathleen Kao, Morana Vucinic, and Kristina Miggiani. 2024. “Central Bank Digital Currency Data Use and Privacy Protection.” IMF Fintech Note 2024/004, International Monetary Fund, Washington, DC.
- National Bank of Kazakhstan. 2022. “Results of Feasibility Study of Introduction of Digital Tenge.” White Paper 2022, National Bank of Kazakhstan.
- Norges Bank. 2022. “Costs in the Norwegian Payment System 2020.” Norges Bank Paper No. 3/2022, Norges Bank, Oslo, Norway.
- Panetta, Fabio. 2021. “Preparing for the Euro’s Digital Future.” The ECB Blog, 14 July 2021. European Central Bank, Frankfurt am Main, Germany.
- Panetta, Fabio. 2022. “Central Bank Digital Currencies: Defining the Problems, Designing the Solutions.” Speech at a Panel Discussion on Central Bank Digital Currencies at the US Monetary Policy Forum, 18 February 2022.
- Reserve Bank of India. 2022. “Concept Note on Central Bank Digital Currency.” Reserve Bank of India, Mumbai, India.
- Reslow, André, Gabriel Soderberg, and Natsuki Tsuda. 2024. “Cross-Border Payments with Retail Central Bank Digital Currencies.” IMF Fintech Note 2024/002, International Monetary Fund, Washington, DC.
- Ricci, Luca Antonio, Calixte Ahokpossi, Anna Belianska, Khushboo Khandelwal, Sunwoo Lee, Grace Li, Yibin Mu, Saad Noor Quayyum, Silvia Nunez, Jack Ree, Marcos Rietti Souto, and Felix Simione. 2024. “Central Bank Digital Currency and Other Digital Payments in Sub-Saharan Africa: A Regional Survey.” IMF Fintech Note 2024/001, International Monetary Fund, Washington, DC.
- Rivadeneyra, Francisco, Scott Hendry, and Alejandro García. 2024. “The Role of Public Money in the Digital Age.” Staff Discussion Paper 2024-11, Bank of Canada, Ottawa, Canada.
- Soderberg, Gabriel, John Kiff, Marianne Bechara, Stephanie Forte, Kathleen Kao, Ashley Lannquist, Tao Sun, Herve Tourpe, and Akihiro Yoshinaga. 2023. “How Should Central Banks Explore Central Bank Digital Currency? A Dynamic Decision-Making Framework.” IMF Fintech Note 2023/008, International Monetary Fund, Washington, DC.
- Sutton-Lalani, Alexandra, Sebastian Hernandez, John Miedema, Jiamin Dai, and Badr Omrane. 2023. “Redefining Financial Inclusion for a Digital Age: Implications for a Central Bank Digital Currency.” Staff Discussion Paper 2023-22, Bank of Canada, Ottawa, Canada.
- Sveriges Riksbank. 2018. “The Riksbank’s e-krona Project: Report 2.” Sveriges Riksbank, Stockholm, Sweden.
- Sveriges Riksbank. 2023. “Cost of Payments in Sweden.” Riksbank Studies, Sveriges Riksbank, Stockholm, Sweden.
- Sveriges Riksbank. 2024. “Payments Report 2024.” Sveriges Riksbank, Stockholm, Sweden.
- The Federal Reserve. 2023. “Federal Reserve Policy on Payment System Risk Effective July 2023.” The Federal Reserve, Washington, DC.
- Thinkstep. 2017. “Carbon Footprint Assessment: Paper vs. Polymer £5 & £10 Bank Notes.” Report on behalf of Bank of England.
- Tourpe, Herve, Ashley Lannquist, and Gabriel Soderberg. 2023. “A Guide to Central Bank Digital Currency Product Development: 5P Methodology and Research and Development.” IMF Fintech Note 2023/007, International Monetary Fund, Washington, DC.
- World Bank. 2016. “Retail Payments: A Practical Guide for Measuring Retail Payment Costs.” World Bank, Washington, DC.
- World Bank. 2021. “Considerations and Lessons for the Development and Implementation of Fast Payment Systems.” Part of the World Bank Fast Payment Toolkit, Main Report, World Bank, Washington, DC.
- World Bank. 2024a. “A Fast Payment Championing Handbook for Central Banks.” World Bank, Washington, DC.
- World Bank. 2024b. “Interoperability between Central Bank Digital Currency Systems and Fast Payment Systems.” World Bank, Washington, DC.

*Positioning Central Bank Digital Currency in the Payments Landscape — NOTE/2024/006*

---


_Source: https://www.imf.org/-/media/files/publications/ftn063/2024/english/ftnea2024006.pdf_