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The MIT Digital Currency Initiative and Maiden have published a report on central bank digital currency (CBDC) design choices and how this could impact financial inclusion.
The main difference between electronic money, like mobile money, mobile applications, electronic money or cards, is that they are all intermediated, unlike cash, which is not. And many retail CBDCs provide for the use of intermediaries. Which raises questions such as costs, control and confidence.
Research identifies five areas that affect user perceptions such as custody, access, purpose, data and distance.
While holding physical species is relatively risky, it provides a check and the report suggests allowing a CBDC to self-care. Researchers interviewed potential end-users in India, Indonesia, Nigeria and Mexico, underlining the need for low-income users to retain control over their incomes.
Sometimes it's a matter of trust, as in Mexico, where there have been a number of cases of fraud in credit unions. But it is also a matter of trusting the intermediary to make the payments quickly and to be transparent about the fees in question. On the other hand, one of the main advantages of liquid assets is simplicity.
Second, there is the issue of access because no one has a bank account. It is difficult to need official identification for those who do not have an account. Most CBDCs plan to limit transaction volumes and values based on the level of identity provided, potentially making CBDCs less inclusive without a digital identity program.
Another area to explore is the purpose of transactions, particularly if cash transactions are immediately definitive. There is a compromise to be made between the finality of the transaction and the possibility of cancelling it if there is an error in the amount or a dispute. The consequences of human mistake are far greater for the poor.
Data and confidentiality are already topical issues with cbdcs. They can reach the poorest.
For example, the data could be used for micro-targeting or to limit a user's ability to spend a government benefit. And lastly, distance is an area where digital money could have clear advantages because remittances cannot be made in cash without going through the moneygram or western union.
However, other problems, such as identity and costs, are exacerbated when it comes to remittances. The report concludes that confidence is essential. It concludes that confidence is essential.
There is a paragraph that deals with the concerns of many potential users of CBDCs and our main concern regarding CBDCs at LEDGER Insights.
