Designing retail CBDCs to support financial inclusion
Many central banks around the world see financial inclusion as a key motivation for their work on retail CBDCs.
This is particularly true in emerging market and developing economies (EMDEs), where access to digital
payment and other financial services is constrained by several key barriers. These include (i) geographic
factors, eg vast territories or islands; (ii) institutional and regulatory factors, such as a lack of identity credentials
and informality; (iii) economic and market structure issues, including limited competition and high costs in the
financial sector; (iv) characteristics of vulnerability, eg barriers by age, gender, income or disability status; (v) a
lack of educational opportunities and financial literacy; and (vi) distrust of existing financial institutions. In
many EMDEs, a majority of adults lack access to digital payment options.
A new study draws on the experience of nine central banks around the world in tackling financial inclusion
challenges.1
It finds that some central banks consider CBDCs as key to their mandate as a catalyst for
innovation and economic development.
Others see CBDCs as a potential complement to existing policies to
support financial inclusion. The study argues that, if CBDCs are to be issued, they could be designed with
several key design features that directly address barriers to financial inclusion. For instance, they might
facilitate low-cost customer enrolment processes, for instance with simplified due diligence, electronic KYC
arrangements and tiered wallets, as demonstrated in several live retail CBDC systems (Graph D1.A). Features
such as the use of third-party agents help to reach isolated communities and to work around a lack of trust in
financial institutions. Central banks can offer a robust, low-cost public infrastructure with a multitude of user
interfaces (Graph D1.B). This includes offline functionality, and interfaces that specifically tailor to underserved
users. And finally, CBDCs foster interoperability both domestically and across borders, thus contributing to
greater competition and lower costs for end users (Graph D1.C).
1 Boakye-Adjei et al (2022).
Inclusive CBDC design features to tackle barriers to financial inclusion Graph D1
A. Simplified due diligence and tiered
know-your-customer (KYC)
B. Multitude of private and public
sector user interfaces
C. Interoperability with other means
of payment
Source: Boakye-Adjei et al (2022).
Text Änderungen S.35:
BIS (2017): Annual Economic Report 2017, June, Chapter IV, “Understanding globalisation”.
——— (2018): Annual Economic Report 2018, June, Chapter V, “Cryptocurrencies: looking beyond the
hype”.
——— (2020): Annual Economic Report 2020, June, Chapter III, “Central banks and payments in the
digital era”.
——— (2021): Annual Economic Report 2021, June, Chapter III, “CBDCs: an opportunity for the
monetary system”.
Such a setup implies that consumers may not always know whether their data are
being collected and for what purpose.
Proponents of crypto argue that permissionless blockchains return the control
over personal data to users, but a system based on pseudo-anonymity and a public
ledger introduces severe risks to privacy and integrity. It is also incompatible with a
system based on real names, which is required to ensure integrity and accountability.
The data architecture underlying both retail FPSs and CBDCs can give much
greater user control over personal data, while preserving privacy and consumer
welfare. Indeed, central banks have no commercial interest in personal data, and
can thus credibly design systems in the public interest. Data governance systems
can ensure user consent, use limitation and retention restrictions.40 Similar to open
banking, these data architectures can also allow users to port data in ways that
BIS Annual Economic Report 2022 101
bring economic benefits to users, for instance when they apply for a loan, want to
use financial planning services or in a range of other contexts. Importantly, such a
system is based on identification – and this identity information may often be held
only by the PSP and not by the central bank. The use of identification also allows
financial intermediaries to screen borrowers to assess their creditworthiness,
thereby ensuring that scarce capital is allocated to its best use.
In the process,
central banks can make use of modern cryptography, which offers
solutions to preserve the privacy of users and ensure the security of transactions. This
can be achieved for instance through ZKPs, which verify the authenticity of the
transaction without revealing its content (Box C). Nonetheless, the system would be
based on users’ true, verified identities, ie they would transact under their real names.
Several central banks also see “electronic cash” in the form of retail CBDC as one
potential solution for preserving people’s transactional privacy.41
Identity-based designs are compatible with integrity in the financial system.
With clear mandates and public accountability, systems can be designed to grant
law enforcement authorities access to information with the requisite legal
safeguards. These approaches are already commonplace in the form of bank
secrecy laws and are being considered for retail CBDCs.42 Importantly, transactions
would not be recorded on a public blockchain visible to all. In the corporate space,
new corporate digital identity solutions could improve oversight of beneficial
ownership, thus reducing fraud, tax avoidance and sanctions evasion.4
3 Together
with new regtech tools and capabilities inspired by blockchain analytics, there is
potential for better tracking illicit activity while making compliance with regulatory
frameworks less resource-intensive.
Finally, retail CBDCs and FPS offer opportunities to improve on accountability
relative to today’s system, and certainly relative to the crypto universe. Indeed, the
design of new public infrastructures is not a task for the central bank alone. New
systems require public dialogue on the role of the central bank in retail payments.
Their operation will require legal mandates to be updated, as well as proper checks
and balances and appropriate forms of central bank accountability to society. It is
for this reason that many central banks have issued consultations on these initiatives
and are promoting dialogue on legal tender and central bank laws.44 A system built
on public infrastructure would also ensure that private service providers are
embedded in a sound regulatory and supervisory framework. Unlike in a parallel
crypto financial system, parties can be held to account for their actions. In this new
ecosystem, there will likely be new private sector business models that do not yet
fit with current regulatory frameworks, but experience to date suggests that
frameworks can adapt to allow for new types of innovative activity
