Central bank digital currencies (CBDCs) are exciting many in the digital assets world, but what can these mean for those who are less engaged and on the fringes of financial services altogether?
CBDCs are rapidly becoming a reality around the world. According to data from the American think tank Atlantic Council, 19 nations out of the G20 are in the advanced stages of CBDC development. Three other countries—Jamaica, the Bahamas, and Nigeria—have fully launched their own CBDCs, with 36 CBDC pilot schemes in action. This is causing much discussion and excitement within the world of digital assets, but questions remain over those who are less engaged with the sector.
It remains to be seen how CBDCs will operate in developed countries’ economies and to what extent those who are on the periphery of financial services will be impacted. The World Bank Group estimates that 1.4 billion people around the world are ‘unbanked’ with no access to regulated financial services.
Fortunately, many payment experts believe CBDCs will help improve financial inclusion and support more ‘unbanked’ people to access financial services.
“Done well, and CBDCs will make payments cheaper and faster, which will benefit the unbanked by offering lower costs and faster service,” says Alessandro Hatami, managing director of strategy consultancy Pacemakers, who also co-authored a book on the digital revolution of finance, Reinventing Banking and Finance. Here, Hatami points to the better customer experience CBDCs can potentially offer people.
“The prospect of cheaper payments through CBDCbased money transfer companies could be a real incentive for the unbanked to finally open a digital wallet,” he says. “It’s also an idea to ensure that CBDC transactions under a certain value remain anonymous to help overcome privacy concerns among the unbanked.”
Those who are unbanked struggle to make or receive payments, pay bills and participate in other everyday banking activities. Chris Lawrence, chief programs officer at global non-profit The Interledger Foundation, says a lack of government-issued ID can hamper these efforts, with banks still abiding by base criteria for opening accounts. Here, Lawrence says CBDCs can play a critical role.
“CBDCs can bypass some of the most fundamental barriers to financial access for underbanked populations,” says Lawrence. “By contrast, anyone can create a digital wallet or account that enables them to transact using CBDCs. That’s because account creation for CBDCs is subject to different criteria than traditional banks. Instead of relying on governmentissued IDs, users are issued private keys that identify them and enable them to transact.”
This could help banks and other institutions become more comfortable engaging with the unbanked. Bound by regulations, banks are committed to KYC processes to ensure they only engage with real people. CBDCs can help fill the gaps unbanked people bring, which George McDonough, CEO of digital asset investment company KR1, believes can help make it easier for these companies to grant approval for products and services.
“The inability to access financial services can sometimes come down to a lack of data and knowledge on that particular person in terms of compliance,” says McDonough, explaining this can be a barrier to reaching conclusions about granting access. “CBDCs could go deeper in terms of data access—a mobile wallet CBDC might be able to provide instant locations, back history, and financial connections with other individuals. Might that not boost inclusion?”
The majority of CBDC projects around the world still need to go live. This raises many questions about how CBDCs will work in reality and, concerning those who are financially excluded, how these currencies could foster better inclusion on a day-to-day basis. Bryan Daugherty, global public policy director at the BSV Association, points out several barriers that may hamper CBDCs’ efforts to improve financial inclusion. These are digital literacy, technology barriers, security concerns, and access to infrastructure.
Specifically, CBDCs’ use of technology could be a disadvantage for some, he explains: “Limited digital literacy among marginalised populations may hinder the effective use of CBDCs… [and] the complexity of digital wallets and CBDC-related technologies could overwhelm some users.
“Despite CBDCs’ aim to increase inclusion, people in areas with poor internet connectivity or lacking digital devices may still face exclusion.”
The risk of consumers not understanding CBDCs cannot be overlooked. Julia Demidova, head of CBDC and digital currencies product and strategy at FIS, warns that these concepts may be too complex for some.
CBDCs can bypass some of the most fundamental barriers to financial access for unbanked populations.
“Wallet management and the new payment interfaces prove difficult for some consumers to use… and consumers may also not be educated enough on CBDCs,” says Demidova. “These concerns, however, can be addressed with education, training, simplified interfaces for consumers, provision of support systems and other strategies to reduce the risk of overcomplicating financial services for those already on the margins.”
Ultimately, CBDCs are digital assets which rely on an internet connection. While this can enhance how some access them, it can also limit access for those without devices. Adam Preis, director of product solution marketing at digital security and identity verification specialists Ping Identity, argues considerations need to be made for those ‘off the grid’, such as the elderly and people who cannot afford digital devices. Preis champions a hybrid approach to make the most of CBDCs in a way that allows access for all.
“By hybrid, we mean consumers must have access to in-branch services, devices which cater to disparate needs, and the ability to make both online and offline payments,” he says.
“Vulnerable people, those who are unbanked and people with disabilities must be a forethought, accommodated and supported—CBDCs will not work otherwise.
“Hybrid experiences must also be underpinned by strong cybersecurity and data privacy practices. Consumers need to know their data and money is safe. Without regulation stipulating good practices, consumers are at risk of fraud, theft, and their data being stolen—all deterrents to financial inclusion.”
Interledger’s Lawrence agrees and argues that a CBDC has to be supported by appropriate digital infrastructure. He says individuals without digital devices on their person shouldn’t be restricted from accessing CBDCs—and the products and services they in turn access—and that payments infrastructures in general need to be updated around them.
“Access to CBDCs will depend on the digital public infrastructure built to transact them, but infrastructure challenges are not limited to technology,” says Lawrence, who doesn’t think the ideal scenario means creating workarounds for a lack of internet access or access to smart devices. “Instead, digital public infrastructure projects should account for these potential setbacks as they roadmap the rollout of their new interoperable financial systems.”
This hybrid narrative has other applications. Crucially, CBDCs shouldn’t be reliant upon connectivity, warns FIS’ Demidova, who says offline functionality needs to be considered.
“The offline functionality of CBDC is paramount, especially for retailers, other businesses and households without a strong, consistent internet connection,” she says. “Offline functionality also ensures that CBDC as a payment system is resilient to intermittent availability challenges including individual user connectivity interruptions, all the way to the regional or system-wide impact events like natural disasters that could affect basic services.”
The launch date of CBDCs may not be imminent, but this doesn’t mean preparations should be delayed. While CBDCs promise advantages such as greater visibility, easier access, and improved efficiency, they also present challenges, particularly for those who are financially illiterate or unfamiliar with digital currencies.
This is why financial education is crucial to the successful adoption of CBDCs. Pacemakers’ Hatami emphasises that comprehensive public education must go ‘hand in hand’ with the introduction of CBDCs to ensure consumers understand this new form of currency. “These should be targeted education programmes aimed at all customers, helping to boost their knowledge of CBDCs and to challenge the extensive disinformation about this transformational innovation,” he adds.
Moreover, the introduction of CBDCs coincides with the rise of digitally savvy younger generations, who often need more financial literacy despite their comfort with technology. Su Carpenter, director of operations at the self-regulatory trade association Crypto UK, sees this as an opportunity. “Working with the government—and other organisations—we can promote financial education to ensure the next generation of consumers and a future workforce can make more informed decisions,” says Carpenter. She suggests that collaborating with the digital assets industry could be key to achieving these objectives if the government is truly committed to growth, jobs, innovation, and inclusivity. Looking ahead, CBDCs’ success will hinge not only on the technological infrastructure and regulatory frameworks supporting them but also on the public’s readiness to embrace this new financial tool. Governments, educational institutions, and industry stakeholders must work together to create an environment where all individuals, regardless of their financial background or digital literacy, can benefit from CBDCs’ opportunities. By addressing these challenges proactively, we can ensure that CBDCs fulfil their promise of enhancing financial inclusion and driving broader economic participation.
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