Central Bank Digital Currency and Financial Inclusion

Abstract

WP/23/69 IMF Working Paper Monetary and Capital Markets Central Bank Digital Currency and Financial Inclusion Prepared by Brandon Joel Tan* Authorized for distribution by Tommaso Mancini-Griffoli March 2023 IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

The Development of Central Bank Digital Currency in China: An Analysis

“…Many CBDC proposals include designs that track the spending habits of ordinary consumers. The International Monetary Fund published an argument citing CBDC as beneficial to financial inclusion because "CBDC generates greater surplus in lending by reducing credit-risk information asymmetry" provided that "is valuable to households as a means of payment or for credit-building" [103]. The mechanism by which information asymmetry is reduced is the ability of lenders to observe patterns in spending activity among consumers.…”

Central Bank Digital Currency Adoption: A Two-Sided Model

“…We are the first to develop a (two-sided payment) model to study both households and firms together. On the household side, our paper is related to the strand of research focused on the disintermediation impact of CBDC (Andolfatto, 2021, Keister and Sanches, 2022, Chiu et al, 2022, Whited et al, 2022, Garratt et al, 2022, Piazzesi and Schneider, 2020, Agur et al, 2022, Chang et al, 2023, Tan, 2023. 9…”

“…In addition to disintermediation, we also examine the implications of CBDC on formality, cash use, and financial inclusion, which are key policy objectives for emerging market and low income economies. We build on the nascent literature exploring CBDC and financial inclusion (Tan, 2023). On the firm side, we are the first paper to study the impact of CBDC on the formalization of the informal economy.…”