KEY FINANCIAL INCLUSION USE CASES FOR DEVELOPING AND EMERGING COUNTRIES

AFI Special Report. This special report on CBDC and financial inclusion aims to unpack these considerations for developing and emerging countries by evaluating the extent to which CBDC can advance financial inclusion.

It provides an overview of the landscape of CBDC in developing and emerging countries and the specific motivations for AFI members to pursue one.

It looks at the current state of financial inclusion across different developing and emerging countries and regions, and identifies the main use cases CBDC can contribute to.

It identifies the relevant barriers to these use cases and the unique CBDC features that address them. It introduces the potential risks and unintended consequences for consumers, central banks, and payment service providers before setting out a framework and roadmap to assist central banks on their CBDC journey from exploration to implementation. Key report findings. Through a series of in-depth key informant interviews with central banks, international organizations and technical platform providers, as well as robust desktop research and analysis, six key insights have emerged from this report:

1 Digital and financial inclusion has been enabled by key drivers while entrenched obstacles remain.

Financial inclusion among excluded and underserved segments in developing and emerging countries have enjoyed significant improvements over the past decade due to key infrastructural, policy and technology-related drivers. These include enhanced digital connectivity, more accessible point-of-sale (POS) devices to ease transactions such as near-field communication (NFC), and simplified know-yourcustomer (KYC) frameworks among others. Yet despite these advancements, notable access and usage barriers remain, such as the remoteness of populations and a lack of basic forms of identity.

2 CBDC design can address specific access constraints that currently affect digital financial

services (DFS): Retail CBDC can be designed to alleviate identity gaps, and mobile phone and digital access divides through its unique ability to generate digital identity proxies and enable offline capabilities while being device agnostic. CBDC, however, is likely to remain limited by poor electricity coverage, access to (and affordability of)

CBDC-enabled devices and limited cash-in and cash-out infrastructure. This last factor is a key prerequisite for driving the adoption of digital payment instruments.8 The recent prolonged unavailability of the ECCB’s DCash is a notable illustration of the bounded potential of CBDC due to outages.9

8 These barriers are more pronounced for women and other vulnerable groups. 9 According to the ECCB, the temporary downtime of DCash resulted from an expired certificate that needed to be reinstalled while the CBDC was offline (Margulies, B. 2022. Pilot CBDC outage due to expired certificate,

ECCB says. 17 February. Central Banking. https://www.centralbanking. com/central-banks/currency/digital-currencies/7926696/eccb-sayspilot-cbdc-failure-due-to-expired-certificate ). While this suggests a technical hiccup to the DCash pilot, it does highlight the lack of immunity of even a CBDC to access and availability challenges.