Assessing consumer CBDC adoption in Luxembourg: A micro-simulation approach

We use micro-simulations to estimate consumer adoption of a central bank digital currency (CBDC) for payments. This requires extending a theoretical model of consumer choice among payment methods with a measure of individual digital preferences. The model defines four types of consumers with different propensities to adopt CBDC. We use data from the 2022 SPACE study of payment attitudes to simulate individual consumer CBDC take-up and then aggregate. Our micro-simulation classifies 1% of consumers as cash-only, 22% as cash-preferring, 29% as cashless-preferring and 47% as cashless-only. Our theoretical results suggest that if CBDC is accepted by all retailers, then cashless-preferring consumers will adopt it instead of cash, but adoption by other consumers would also depend on CBDC design, cost, security and their use of credit cards. Assuming CBDC is universally accepted and can be adopted at no cost, we consider two alternative designs for the CBDC wallet. The first can fund CBDC transactions by drawing cash directly from the user’s bank payment account, which results in consumers executing 24% of the value of their total payments in CBDC. The second design also funds CBDC transactions via a direct link to consumer credit (e.g. drawing on the user’s credit card), which results in consumers executing 92% of the value of their total payments in CBDC.