BIS publishes study of CBDCs and their role in financial inclusion of the unbanked

The Bank for International Settlements, or BIS, on Tuesday published a paper on central bank digital currencies, or CBDCs, and how they can be used to meet policies for financial inclusion. The paper draws on interviews conducted in the second half of last year at nine central banks currently exploring retail CBDCs. It looked at common goals across a variety of levels of economic development and inclusion challenges.

The paper identified two distinct approaches to CBDC. Some central banks saw digital currency as a catalyst for innovation and development, while others expected it to serve as a complement to existing initiatives. All central banks addressed the need for education and acceptance by stakeholders, both consumers and service providers.

Data privacy, and the related problems of money laundering and terrorist financing, were seen as top challenges. Serving the vulnerable – children, the elderly and users with disabilities – was also called a priority.

Some challenges, such as geographical isolation and levels of digitization, varied in degree between the central banks, but several CBDC design features were highlighted as key to financial inclusion across the spectrum. Promotion of a two-tiered payment system with private participants, interoperability across multiple functions and boundaries, and adequate regulation were elements mentioned in this regard.

The central banks discussed in the paper were those of the Bahamas, Canada, China, the Eastern Caribbean, Ghana, Malaysia, the Philippines, Ukraine and Uruguay. The World Bank also participated in the study.

The BIS has taken a strong stance on the central bank’s place in the emerging digital economy and the need for cryptocurrency regulation. It has recently completed a successful pilot project, called Project Dunbar, with the central banks of Australia, Malaysia, Singapore and South Africa to create an international settlement platform.