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

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  • Ozili, Peterson K

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.

Suggested Citation

  • Ozili, Peterson K, 2022. "Can central bank digital currency increase financial inclusion? Arguments for and against," MPRA Paper 110786, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:110786
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    File URL: https://mpra.ub.uni-muenchen.de/110786/1/MPRA_paper_110786.pdf
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    References listed on IDEAS

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    1. David Andolfatto, 2021. "Assessing the Impact of Central Bank Digital Currency on Private Banks," The Economic Journal, Royal Economic Society, vol. 131(634), pages 525-540.
    2. Michael D. Bordo & Andrew T. Levin, 2017. "Central Bank Digital Currency and the Future of Monetary Policy," NBER Working Papers 23711, National Bureau of Economic Research, Inc.
    3. Davoodalhosseini, Seyed Mohammadreza, 2022. "Central bank digital currency and monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 142(C).
    4. Jesse Leigh Maniff, 2020. "Motives Matter: Examining Potential Tension in Central Bank Digital Currency Designs," Payments System Research Briefing, Federal Reserve Bank of Kansas City, pages 1-4, July.
    5. Jesus Fernandez-Villaverde & Daniel Sanches & Linda Schilling & Harald Uhlig, 2021. "Central Bank Digital Currency: Central Banking For All?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 41, pages 225-242, July.
    6. Ozili, Peterson K, 2021. "Central bank digital currency in Nigeria: opportunities and risks," MPRA Paper 110152, University Library of Munich, Germany.
    7. Josephine Ofosu‐Mensah Ababio & Edward Attah‐Botchwey & Eric Osei‐Assibey & Charles Barnor, 2021. "Financial inclusion and human development in frontier countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 42-59, January.
    8. Todd Keister & Daniel Sanches, 2023. "Should Central Banks Issue Digital Currency?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(1), pages 404-431.
    9. Peterson K. Ozili, 2018. "Impact of digital finance on financial inclusion and stability," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 18(4), pages 329-340, December.
    10. Walter Engert & Ben Fung, 2017. "Central Bank Digital Currency: Motivations and Implications," Discussion Papers 17-16, Bank of Canada.
    11. Ozili, Peterson Kitakogelu, 2018. "Impact of Digital Finance on Financial Inclusion and Stability," MPRA Paper 84771, University Library of Munich, Germany.
    12. Huang, Ruixian & Kale, Seenaiah & Paramati, Sudharshan Reddy & Taghizadeh-Hesary, Farhad, 2021. "The nexus between financial inclusion and economic development: Comparison of old and new EU member countries," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 1-15.
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    Cited by:

    1. Ozili, Peterson K, 2023. "Central bank digital currency, poverty reduction and the United Nations sustainable development goals," MPRA Paper 117000, University Library of Munich, Germany.
    2. Ozili, Peterson K, 2023. "Assessing global and local interest in eNaira CBDC and cryptocurrency information: implications for financial stability," MPRA Paper 116978, University Library of Munich, Germany.

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    More about this item

    Keywords

    financial inclusion; central bank digital currency; CBDC; debate; arguments; digital currency; monetary policy; cash.;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • I39 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Other

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