Will Central Bank Digital Currencies be a Game-Changer for Financial Inclusion?

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Central banks have been eying the emergence of privately issued digital currencies with a mix of excitement and anxiety and some began experimenting with their own versions of crypto: central bank digital currencies (CBDCs). Advocates say CBDCs offer an alternative to private digital currencies that will enable central banks to retain their control over national monetary supplies, better combat money laundering and fraud, and even advance financial inclusion.

But are CBDCs really the game-changer for financial inclusion that many claim? What are the key enablers and constraints to CBDCs advancing financial inclusion? And how are central banks thinking about designing CBDCs to ensure that they achieve their goals?   

This is the fourth episode in CGAP's new podcast, Inclusive Finance Frontiers

Featured Voices

Kwame Oppong, Head of Fintech and Innovation, Bank of Ghana  
Mahesh Uttamchandani, Global Practice Manager for the World Bank Group’s Financial Inclusion, Access and Infrastructure between January 2018 and September 2022 and currently the World Bank’s Practice Manager for Digital Development in East Asia and the Pacific 
Nana Yaa Boakye-Adjei, Senior Consultant, the World Bank between May 2020 and January 2023 
Tanja Hessdörfer, Head of Sales and Business Development CBDC at Giesecke+Devrient  
Mehmet Kerse, Senior Consultant on Digital Finance and Financial Inclusion, CGAP  


Sai Krishna Kumaraswamy: Hello, and welcome to Inclusive Finance Frontiers presented by CGAP, a global partnership that works to advance the lives of people living in poverty through financial inclusion. I’m your host Sai Krishna Kumaraswamy, a CGAP Financial Sector analyst. My co-host is Yasmin Bin-Humam, a CGAP Financial Sector Specialist. Welcome, Yasmin.

Yasmin Bin-Humam: Hi Sai!

Sai Krishna Kumaraswamy: What do you know about digital currencies and Central Bank digital currencies in particular?

Yasmin Bin-Humam: Well, I can't say I know anything about Central Bank digital currencies and digital currencies writ large. I know the buzzwords like cryptocurrency and crypto mining, and my children are constantly asking me for these particular digital coins to spend in their video games. So that's mostly what I know. And of course, I remember the hype around Libra, which was Facebook's plan digital currency.

Sai Krishna Kumaraswamy: Exactly. Libra was what's called a stablecoin, meaning its value is supposed to be pec to the value of a traditional fiat currency like the US dollar. Most people have heard about cryptocurrencies, but these are not linked to the value of fiat currency. So, the value is both highly volatile and impractical for use as a medium of exchange.

Yasmin Bin-Humam: Why is that?

Sai Krishna Kumaraswamy: Well, as a consumer, why would I spend a digital coin worth $30 today to buy, let's say a T-shirt, when it might be worth $300 or even $3,000 if I held onto it for a few months. That's just too much uncertainty.

Yasmin Bin-Humam: Okay, I see. So, Libra was designed to track the value of the dollar, making it more stable and suitable for transactions. Hence the name Stablecoin. But why did Facebook want to create one?

Sai Krishna Kumaraswamy: Well, Facebook wasn't the first to venture into stable coins, but unlike other stablecoin at the time, Libra leader called DM would've had a massive market at scale with nearly 1.5 billion Facebook users.

Yasmin Bin-Humam: I'm a Facebook user as well. It sounds like it would have a lot of implications.

Sai Krishna Kumaraswamy: Yeah. Suddenly the threat of private stablecoin competing with national Fiat currencies at scale was real. This raised many concerns among central bankers. Because the retail CBDC would allow two central banks in a sense, to settle those transactions directly, it can be a potential game changer on a whole bunch of fronts outside of just financial inclusion.

Yasmin Bin-Humam: There’s a lot to unpack and many folks to hear from so let’s get started!

Sai Krishna Kumaraswamy: Let’s start with the basics of CBDCs. We spoke to Mehmet Kerse, a CGAP consultant who focuses on digital financial services and a wide range of other topics.

Mehmet Kerse: As you know, CBDC is issued by a central bank. It's the liability of a central bank and issued in domestic currency. There are two types of CBDC, wholesale and retail. Wholesale CBDC would be limited to users such as banks and other financial institutions. Retail CBDC is for the use of public, such as individuals and businesses. Retail CBDC would offer any way to store value and make payments. CBDC are different from other digital currencies, such as crypto assets. Money typically has three basic functions. First, store value, seconds, medium of exchange, and third unit of account. Unlike Fiat currencies, crypto assets are far from fully satisfying all those functions, crypto assets have little use so far as a store of value or a unit of accounts because their value is highly volatile. Also limited acceptance for payments limits crypto assets used as a medium of exchange.

Also, crypto assets are often not regulated, and they lack adequate customer protection measure. All of these make crypto assets unreliable payment means, especially for the low-income consumers in developing countries. And these consumers are mostly not familiar with sophisticated financial products and services, and they do not have enough capacity to deal with the financial losses.

Sai Krishna Kumaraswamy: CBDCs presented an alternative to private digital currencies. They enable governments to reap the benefits of crypto-assets while limiting some of the risks. A CBDC is legal tender. It can be converted into - and used in the same ways - as cash. But unlike a crypto-asset, it is controlled by policy makers. The launch of the Libra project helped to ramp up interest in CBDC research and development.

Mehmet Kerse: I think the Libra announcement, accelerated the discussions around CBDC in many countries. But even before the Libra announcement in 2019, there were central banks that already started to research and looking closely at CBDC.

For example, in 2017 central bank Sweden, the Riksbank launched its E-krona project to research the need for CBDC. Another example is Central Bank of Uruguay started a six-month pilot in 2017 to test its CBDC which was called E-Peso. So, when I look at the reports of countries on CBDC, I see that different countries have different objectives in pursuing CBDC. For example, enhancing domestic payment system efficiency, increasing competition, ensuring the continued access of individuals and businesses to central bank money, reducing the adoption of crypto assets and enhancing cross border payments.

Sai Krishna Kumaraswamy: And interest in CBDCs continues to grow.

Mehmet Kerse: According to the Atlantic council CBDC tracker, now 105 countries are exploring CBDC. Fifty countries are in the advanced stages of exploration. The Bahamas officially launched its retail CBDC in 2020. Several countries such as China and Ghana have been piloting their CBDC right now. According to the surveys of the Bank for International Settlements on CBDC, financial inclusion is one of the primary motivations across emerging markets and developing economies.

Sai Krishna Kumaraswamy: Mahesh Uttamchandani is the former global manager for the World Bank’s financial inclusion and financial infrastructure (FCI) up until September 2022. And today the World Bank’s Practice Manager for Digital Development in East Asia & the Pacific.

We asked Mahesh about FCI’s focus on CBDCs, why so many central banks are convinced that CBDCs will advance financial inclusion, and how are they designing CBDCs to ensure that they achieve their goals.

Mahesh Uttamchandani: We care about CBDCs, because emerging markets and developing economies care about them. And our work with our clients is demand driven. And so, when our client countries come to us with these concerns, we like to be responsive, but also when they come to us with broader policy concerns that CBDCs may help address or may create challenges for then it's, it's part of our responsibility to understand that issue very well. And how would it apply to the context of our client countries? I think it's important to note that from the World Bank's perspective, financial inclusion is not the only objective of the financial sector. It's an important and critical one, one that we care deeply about, but we are also concerned about financial stability. We're concerned about issues like any anti-money laundering and combating the financing of terrorism. We're concerned about the development of capital markets.

So CBDCs fit in this larger context of the entire financial sector. And I think it's really important when you're working with governments on issues relating to the financial sector to not take too narrow an approach that's driven by a single issue, because I think that's actually how we can somehow solve some problems while exacerbating other challenges.

So that brings us to the financial inclusion benefits of CBDCs. And we certainly see that they have the potential to advance inclusion, particularly because digital finance has shown that it can reach the unbanked at scale in ways that traditional finance has been unable to. But I think we see CBDCs as just one tool in the arsenal that regulators and policymakers may have to address the question of financial inclusion. And it certainly raises a number of potential challenges.

Sai Krishna Kumaraswamy: Last-mile financial inclusion -or reaching the unbanked, poor and remote populations remains an obstacle with CBDCs.

Mahesh Uttamchandani: one of the challenges to reaching the last mile, of individuals in a country is their ability to cash in and cash out because even in a largely digital economy, there will always be need for cash. And so, agent networks played an important role in the cash in and cash out part of the economy and CBDCs, will experience the same challenges that mobile money and other tools experience in cash in and cash out.

When you are looking at the launch of a CBDC from a design standpoint, you're often in many countries looking at building the CBDC on top of the existing banking infrastructure, unless the central bank itself wants to turn into a consumer commercial bank. And so again, when you're building on top of the existing banking infrastructure, you're going to experience some of the same limitations that the existing banking infrastructure experiences in reaching people at the bottom of the economic pyramid. So, it's important to understand that CBDC can be revolutionary. They can expand financial inclusion, but they're not magical.

Sai Krishna Kumaraswamy: And that’s really important to consider. While CBDCs certainly do seem to offer great potential for financial inclusion, experts at the World Bank, CGAP, and elsewhere caution that CBDCs alone will not solve financial inclusion. For Mehmet Kerse, much depends on how central banks design their CBDC and the supporting policies they adopt.

Mehmet Kerse: One of the questions for a developing country is how the customer onboarding will be handled. This is especially important for the countries where most of the population does not have a government issued ID. Will there be simplified due diligence rules to advance financial inclusion? Would remote onboarding of customers be possible? Will there be some form of electronic KYC and digital identity solutions that CBDC customers can use?

These are some questions and there are other considerations for central banks. For example, will the CBDC be integrated to the existing payment systems such as mobile money? How will the customers access central bank digital currency? Will the central bank design a two-tier CBDC system where the existing financial institutions act as intermediaries? And how will the two-tier system look like? 

About the cost, there are many central banks that are planning to keep CBDC transaction costs very low, or some are planning to keep CBDC transactions totally free. This is great for low-income people. However, it's important for a central bank to consider how the costs related to providing CBDC services will be recovered. So, if these costs are absorbed by financial institutions, there may not be a viable business case for these institutions. So, in this case, these financial providers may not be willing to offer CBDC services to customers, and these financial institutions are important for a successful two tier CBDC system.

Sai Krishna Kumaraswamy: Many central banks are aware of these challenges and tend to see CBDCs as part of a broader financial inclusion strategy. The World Bank and the B.I.S. conducted joint research to look into how central banks are using CBDCs.

Nana Yaa Boakye-Adjei is a senior consultant within the financial inclusion and access unit of the World Bank and was, until recently, at the Financial Stability Institute of the B.I.S. working on financial inclusion, policy regulation, innovation, and tech. She offers some key insights from her research.

Nana Yaa Boakye-Adjei: I think what we really wanted to understand was, for those central banks that have issued a CBDC or who have advanced thinking on it, um, as well as having relatively advanced thinking on financial inclusion, to what extent did they see a CBDC as a potential policy tool, um, for addressing their financial inclusion barriers, um, and also how do they view it relative to others that are available that they're either currently using or coming online at the moment. and then we really wanted to get a sense of the challenges, the risks that they see and then the kind of policy and regulatory responses that they foresee or have implemented to address those. So, we spoke to, I think it was nine or 10 central banks, who, you know, had advanced thinking on this topic.

I think it's definitely too early to say what's working and what's not. The one thing that we can conclude is that CBDC is not a panacea to financial exclusion, right? They're not gonna come in and solve every problem that you have to every barrier that is preventing people from accessing financial services. And if you really want them to if you really want to deploy this tool in an effective way, then the kind of standard kind of enabling kind of factors would need to be in place to achieve universal access kind of within a market apply. You need that public sector commitment. You get that with a CBDC because it's a public innovation, but you also need that private sector commitment. You need that buy in from the private sector players, from financial institutions, both bank and non-bank, and that came across really strongly.

Sai Krishna Kumaraswamy: Nana Yaa says that central banks should ensure that the infrastructure is interoperable and sound, allowing different players in the market to have access to it. The reach needs to extend to those who are rural, remote, and isolated.

Nana Yaa Boakye-Adjei: Like with all forms of digital money or digital payments that we've seen kind of driving financial inclusion over the last decade, kind of a critical factor in their success is ensuring that different systems can speak to each other. So, if I have one account here, I use a mobile money service. I may want to be able to send money to someone who’s a different type of mobile money service, or to someone who has a bank account. Similarly, if you want CBDC to be effective, if you want it to be useful and therefore for people to adopt it, um, it needs to be integrated into the system where money can flow seamlessly from kind of, you know, central bank money into private money.

Sai Krishna Kumaraswamy: Mehmet says that there are a number of issues countries must address to create CBDCs that are inclusive. 

Mehmet Kerse: For example, one consideration is how individuals can access CBDC. There are several proposed CBDC models around the globe. Many of them require users to have an internet connection. In some cases, users would need to have a smartphone and they need to download an application to access CBDC. However, some parts of the developing world, especially rural area, have weak telecommunications infrastructure. Also, many individuals, they might have issues in accessing technology.

Today in many countries, more than 50% of the population do not have reliable internet access, and a smartphone may not be accessed by the individuals in rural areas. That's why it's important for central banks to make sure that individuals can access CBDC with their non smartphones with their basic feature phones.

If there is an internet connection problem. So, there should be some sort of offline solutions where stores, merchants, businesses, and individuals can easily make CBDC transfers and CBDC transactions, when there is an internet outage.

Sai Krishna Kumaraswamy: Central banks also need to address the gender gap while developing a CBDC if they want to enhance financial inclusion.

Mehmet Kerse: A retail CBDC that can only be accessed with reliable internet connection, and with the smartphone may not be accessed by the women in rural areas. there should be some offline solutions where women in rural areas can easily make CBDC transfers and CBDC transactions.

Sai Krishna Kumaraswamy: And it’s not just women who are excluded.

Nana Yaa Boakye-Adjei: The youth tends to be more excluded or older populations tend to be more excluded, kind of poorer segments of the population. Those with, with any kind of physical impairment. understanding those specific groups and the reasons for why they are excluded will be really important to addressing their specific challenges.

On the digital divide, I don't think we can stress enough the importance of making sure that, the tools that you use to drive inclusion don't inadvertently result in deeper or different types of exclusion. My parents are not great with digital tools. I was asking my dad to copy and paste a text message from one text you received into another. And he was like, what's copy and paste. So you have to kind of be cognizant of the capabilities and the limitations of your population and not kind of push too hard, too fast to achieve this kind of digital vision.

Sai Krishna Kumaraswamy: And Mehmet says that trust in the system is essential.

Mehmet Kerse: If individuals do not trust the central bank and the government with their transactions, with their data, et cetera, the CBDC will not be adopted, and of course, for the success of CBDC the individuals and businesses need to trust that the central bank will be able to meet its CBDC liabilities in a timely manner.

There is a concern around that the central bank and other government authorities will be able to see CBDC related data of individual users and their identity information. So, there is a concern that the government might be able to monitor what individuals did, what transactions. It's essential for the financial inclusion community and policy makers and central bankers to consider how user privacy is respected while designing a CBDC. Some countries are already working on a design where the central bank won't have the details of individual transactions and the personal data of users, the personal data of account owners. And in this case, the relevant central bank will not hold granular data on any users.

So, this could bring a better environment for protecting privacy. This could bring a better environment for protecting privacy. It would lead to public confidence and trust in using CBDC.

Sai Krishna Kumaraswamy: Ghana is one of the countries in the early stages of developing CBDC. The Central Bank of Ghana has launched a pilot program to launch the digital cedi or e-cedi. Nana Yaa sees great promise in the work Ghana is doing.

Nana Yaa Boakye-Adjei: I think Ghana’s a really interesting case. They've done a lot of thinking around kind of how they will build out the architecture and how they will engage with the private sector, particularly because mobile money has been so transformative.

I think that is particularly interesting about Ghana, is their work around offline., to really address some of the challenges at the very last mile. So, in the really very rural parts of Ghana where, you know, electricity is a challenge, um, where, you know, telecommunication at the very basic level. Is there potential for CBDC to do something in this context?

Sai Krishna Kumaraswamy: Kwame Oppong is the Director of Fintech and Innovation at the Central Bank of Ghana. Kwame explained how the e-cedi pilot program is working.

Kwame Oppong: Bank of Ghana announced in November 2019 that we would be proceeding with exploring a digital version of our local currency to cedi in a sandbox environment. The reason we began to explore CBDC is we have observed over the years that both as part of our efforts and global trends, the consumers within Ghana are increasingly preferring digital payments. And from a government effort standpoint, as well were increasingly initiating and implementing policies that will digitize the economy for the long term. We also had to look at the fact that as we embarked on some of these initiatives, and as you continue to observe some global trends, it became clear that it is important for us as a central bank to begin to anticipate what our role would be in the future, where the economy is more digital than physical.

And this was to be explored in a three-stage pilot, which we subsequently conducted all the proprietary work to initiate the first stage involved the development of a white paper, a design paper, which basically captured what our vision, the goals, the objectives, the motivations, and our expectations of e-cedi look like. And this would serve as a vehicle through which we will communicate both with our local and international stakeholders on the exploration that we are undertaken, to solicit inputs from everyone as well, such that it would be enhanced by the views that we perhaps could solicit from consumers, businesses as well as third party experts in different aspects of the e-cedi technology or the CBDC technology, to be able to enhance what we're working on.

The second state of the pilot also looked at developing a prototype or if you'd call it a minimum viable product, in a sense, with which we would conduct the pilots to allow consumers to test the e-cedi in what feels like real life settings and the final stage, which we are in and are concluding as we speak involved, the actual testing of the e-cedi. And in addition to that, A couple of activities that accompanied that whole process as well. This includes specifically developing a final report with some user feedback to advise both the bank and the general public as to what the results of the pilots had been. So, we're currently at the final stage of the pilot.

Sai Krishna Kumaraswamy: Tanja Hessdörfer is the head of Sales and Business Development for Central Bank Digital Currency at Gizeke and Devriend or G+D, a company working with the central banks of several countries including the Bank of Ghana. G+D is the technology provider for the pilot program.

Tanja Hessdörfer: Central banks have a mandate to preserve money as a public good, and today this mandate is fulfilled by providing physical money in forms of bank notes and coins to the people. However, we also see that the digital transformation is disrupting cash, acceptance and usage in some parts of the world. So that means that central banks need to ensure continued access to central bank money also in the digital age, and therefore we are confident that a central bank digital currency could actually serve as a tool to accelerate the process of greater financial inclusion if it's, um, designed in the right way.

So like physical cash CBDC would then be public money and therefore universally be accessible. Some of the challenges that are faced today with digital payment services are of course in terms of fee structure. So, a lot of private money schemes come with transaction fees and usage fees, which not everyone can really afford. We also see that there are geographical barriers where people just cannot access the next bank branch because it's too far away. We also see that there are barriers of age, gender, income, and physical disability where they cannot use digital payment methods. And of course, also, a lack of financial literacy and low trust and existing financial services where we believe that Central Bank digital currency has a right to play and where it can provide a digital form of public money for the new age, where a lot of people will pay in digital, use cases, compared to the physical ones that we know as of today.

Sai Krishna Kumaraswamy: Bank of Ghana also believes CBCDs have the potential to provide important benefits that mobile money cannot.

Kwame Oppong: Mobile money is basically a payment service that is run on a derivative of currency. The service provider collects funds from consumers, puts it in an account, a trust account and creates a private and proprietary electronic value, which consumers transact with.

CBDC as we view it, is currency. It is not a payment service. In that regard, I can have CBDC in an account and access it with a debit card with some form of a mobile banking application, a web interface USSD QR, or whatever means and channel I'm provided by my bank or financial service provider to spend from an account. On the other hand as well, CBDC is also still a currency. And, while it may not be a physical note, such as currency notes and coins. It is a dematerialized version that consumers can spend in an offline setting as well. So just as I could take cash from my physical purse and make a payment to a person who's in front of me, i.e. merchant to another individual, CBDC also allows that.

Now, the reason why I highlight this is that from Ghana's perspective, financial inclusion is one of the primary reasons why we've also been looking at CBDC. And if you look at our reality today, there are two things that are important for us to look at. Secondly, you also have the fact that, we wanted to make sure that in trying to address the issue of universal access to this currency, the dematerialized version of currency, we could potentially solve that problem with the offline capability that CBDC introduces.

In which case you can now begin to solve that true last mile challenge, where obviously I think mobile money has done an incredible job for us as a society in really bringing many people into the formal financial sector. However, it remains limited to availability of the telecommunication network. So that opportunity to extend financial services beyond the connected zone was very important for us.

Sai Krishna Kumaraswamy: The potential for CBDCs to help create economic opportunities and reduce poverty has proven to be a very attractive proposition. As Kwame said, from Ghana's perspective, financial inclusion is one of the primary reasons why they have developed a CBDC program.

Kwame Oppong: When we look at the issue of financial inclusion, you are looking at three main areas. One, being able to create access, which per the recent fintech survey Ghana is now at 68%. So, this is as of 2021, which gives us about two more years to go to try and bridge the target that we've set for ourselves. But in addition to access, is the issue of having a variety of financial services for the consumers so that it can address their financial needs. And then the last stage obviously has to do with an informed usage of whatever financial services I put before them so that it doesn’t wind up either being excluded once more or perhaps being lost to the whole cause entirely. If you look at CBDC today, particularly when you look at the offline capabilities, which is an area we explored a bit, you basically find yourself with a scenario where if you took a smallholder farmer who lives in a small community, cut off from the telecommunication network, they are buying inputs like fertilizers for their next production cycle.

The problem is that is all invisible to a bank or financial service provider. So even when that bank sends an agent, agency banking team into that community, they struggle to develop product and services to support these consumers. Now, if you could, for instance, as we did, in our case with the CBDC pilots in a small community called Sefwi Asafo about 10 hours from the capital city into the Western north region of Ghana, you will be able to provide them a version of currency that while offline is still digital in the sense that because these are notes and this is why I emphasize the issue of CBDC is currency, first and foremost, the currency notes, the digital notes are actually kept on some kind of device.

Sai Krishna Kumaraswamy: G+D believes that the potential for CBDCs to impact financial inclusion in emerging market economies is huge. In addition to working with the likes of Central Bank of Thailand and the Central Bank of Brazil to offer dual offline payments use case, they developed an offline payment solution that they are currently piloting it in Ghana.

Tanja Hessdörfer: G+D is providing a solution that is called Filia. It's a Latin and it means daughter. So, we see it as the new member of the payments family. And with Filia, one of our core design criteria when we started to build a solution many years back, was the ability to also support consecutive offline payments—meaning that even without any network connectivity or without internet, you would be able to make payments from person A to person B, to person C and so on. So, coming with that design criteria, we went back to develop a technology that is token based. So, meaning that money is represented by a piece of data, and payments are done by transferring this piece of data from one wallet to another wallet. And following this token-based approach, you could even transfer such tokens in an offline environment, for example using the nearfield communication interfaces to transfer data from wallet A, wallet B, and wallet C and so on.

In a very simple and basic case, we can distribute smart cards. And on these smart cards, you could store CBDC and make payments from one card to another card by utilizing an intermediary device, for example, an offline, battery driven device to transfer the funds, or you could also transfer money from one card to a phone and so on. But we also experiment with other form factors like wristbands or key fobs. We also are involved in a PUC to see how we can enable offline payments from one smartphone to another smartphone.

Sai Krishna Kumaraswamy: They found that for consumers in Ghana, familiarity and ease of the form factor made smart cards a good choice.

Kwame Oppong: The funds reside locally on the card almost as you would have some kind of a gift card or some kind of a, a file on a device, right. Because you could also do this with smart watches with your mobile phone device. You could actually save them locally on there as well.

And so the merchants has one of these cards, consumers and customers would come, buy goods, you know, this is a merchant payment use case. So, they would come and buy their goods. And they both insert the merchant has their card already and inserted in there. So, the customer also inserts their card, on the other end, puts in their pin because the amount that have been rang up already, they put in their pin and the transaction goes through. So, the tokens, the exact amount would go from the customer's smart card to the merchant smart card. Down the line when this continues real well, that customer can now authenticate because privacy and customer protection is also very important to us. And because we also KYC the customers before giving them the users before giving them the cards, they can now effectively give access to a bank or a lender to evaluate their transaction history.

This can actually be secured, securely collected and evaluate them for a loan, a savings product, a pension product or whatever it is, because now you have some idea of the transactional footprints, which is digital in nature. Same goes for the merchants as well. So as one bank said, this really creates the footprints for the financial sector, to follow into territories and areas, they could hear that to not have gone. And for us, we think that is the policy level support that we can provide. So that not only are we creating access, we're also helping with a richer data that becomes available the creation of a variety of products and services to address their financial needs.

Sai Krishna Kumaraswamy: An easy-to-use offline solution also aids in addressing the issue of gender disparity.

Kwame Oppong: Now, while we have a lower discrepancy than the average in Sub-Saharan Africa, that is still not acceptable based on our prevailing realities, but there are different things that are being done more broadly from the financial inclusion standpoint, in specific to CBDC, one of the things that perhaps could really help us address more of these challenges is rural dwelling women with the offline version of CBDC, they do not need to have a cell phone to be able to spend money digitally, or to make payments digitally, or to go and receive payments digitally. And so, the introduction of a much cheaper form factor for keeping money and making payments is very powerful.

In addition to that, because they typically have responsibility for the household. I think there's a reasonable hypothesis that you will see a bit more economic activities on their quote, unquote wallets or accounts. These cards that they'll be using or whatever phone factor they'll be using, ultimately. And what that means is there'll be more information on them, so they are going to be less invisible to financial sector providers who show up.

Obviously, the issue of gender biases and account access goes deeper. There are cultural and religious reasons and others. But at least for those smallholder farmers, the rural traders, the women in the mix really get the opportunity to address more of the challenges they've had.

Sai Krishna Kumaraswamy: Nana Yaa is looking ahead to the results of Ghana’s pilot program.

Nana Yaa Boakye-Adjei: I think that there will be a lot of learning that will come out of those pilots for both Ghana and for other countries that have similar kind of geographical barriers. So now I'm excited to see where that goes.

Sai Krishna Kumaraswamy: I am now also excited to see where that goes! So, looking ahead to the future, what else can we expect? if CBDCs are, in fact, the future of currency? How will financial and currency markets change as we know them? Mahesh Uttamchandani says the answer rests at least in part on the design features that are chosen by each country.  

Mahesh Uttamchandani: It is possible to envision a retail CBDC that really is game changing. One feature that interests us is the potential programmability of digital money. So, for example, if a government was issuing a stimulus, it could program that money so that it declines in value until it is spent. And in that way, it would encourage the recipient of that money to spend it rather than save it. That's a tool, you know, whether one thinks that's good or bad, that's a tool that doesn't exist in monetary policy today in, in large terms. And so that's an interesting feature of, of CBCs that we think could revolutionize monetary policy. 

I think it also has the potential to really simplify and lower the cost of cross border remittances. Particularly if you can have bilateral arrangements between central banks that have issued CBDCs. On the convertibility of their currency, and that would potentially solve some of the de-risking challenges that smaller countries have been experiencing, where they have lost their correspondent banking relationships, because the retail CBDC would allow two central banks in a sense to, to settle those transactions directly. It can be a potential game changer on a whole bunch of fronts outside of just financial inclusion.  

Sai Krishna Kumaraswamy: So Yasmin, what have you learned about cbdc from our experts today?

Yasmin Bin-Humam: So what I understand is that right now, if I wanted to send you money I to give my bank, your bank account number, the routing number of your bank, they would have to verify that exists and that I have enough money in my account sent to you. And then similar verifications would have to be conducted by your bank. But with Central Bank digital currencies, it's like you and I communicate directly rather than through our financial intermediaries.

Sai Krishna Kumaraswamy: That's right. And you can imagine that such a system would allow us to transact more easily even without an internet connection, because we could make these transfers using Bluetooth or other ways of sending data. That's where the potential to reach the last mile is.

Yasmin Bin-Humam: But having everything recorded and visible in one system seems like a double-edged sword. It can work for me if I want to get credit and prove to a bank that I have a responsible history, but on the other hand, what if hackers get into the system? Those hackers would know absolutely everything about me.

Sai Krishna Kumaraswamy: Yes, we are not there yet, which is why the pilots are so important.

Yasmin Bin-Humam: I understand it better now and let's continue to follow the issues.

Sai Krishna Kumaraswamy: Thank you for tuning into the Inclusive Finance Frontiers podcast from CGAP. If you enjoyed this episode, please subscribe to our podcast and spread the word among your networks. Special thanks to our episode guests, my co-host Yasmin Bin-Humam, the CGAP podcast production committee and CGAP’s production partner Volubility Podcasting.