Can central bank digital currency increase financial inclusion? Arguments for and against

Ozili, Peterson K (2022): Can central bank digital currency increase financial inclusion? Arguments for and against. Forthcoming in:

Abstract

This paper presents the arguments for and against central bank digital currency increasing financial inclusion. Financial inclusion is arguably one of the many reasons for issuing a central bank digital currency. The arguments in support of CBDC increasing financial inclusion are that CBDC can digitize value chains, CBDCs can improve access to digital financial services, CBDC can help to enlarge the digital economy, CBDC can enhance the efficiency of digital payments, CBDC can be used offline when there is no internet coverage, and CBDC offer low transaction costs. The arguments against CBDC increasing financial inclusion are that CBDC may not prioritize financial inclusion, the high cost to purchase digital devices for holding a CBDC, non-interest bearing CBDC, the strong preference for cash over digital currency, the burdensome identification and regulatory requirements, and the imposition of transaction costs. The arguments presented in this paper shows that there is still disagreement over whether a central bank digital currency can increase financial inclusion. Nevertheless, in the light of recent events, many central banks are determined to issue a central bank digital currency for many reasons. Even though a central bank digital currency does not achieve the intended financial inclusion objective, at least, the other objectives for issuing a central bank digital currency can be achieved such as the reduction in cash management costs and the effective conduct of monetary policy.

• Item Type: MPRA Paper
• Language: English
• Keywords: financial inclusion, central bank digital currency, CBDC, debate, arguments, digital currency, monetary policy, cash.
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems ; Standards ; Regimes ; Government and the Monetary System ; Payment Systems; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E50 - General; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E59 - Other; G - Financial Economics > G2 - Financial Institutions and Services; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I31 - General Welfare, Well-Being; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I38 - Government Policy ; Provision and Effects of Welfare Programs; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I39 - Other

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