Central Bank Digital Currencies and Financial Inclusion in Developing Economies: Opportunities, Challenges, and Lessons from Early Adopters

The paper investigates the potential of Central Bank Digital Currencies (CBDCs) to enhance financial inclusion by improving access to digital financial services for unbanked populations, particularly in developing economies where the issue of financial exclusion and low access to financial services is endemic. Our analytical interest substantiates inthe growing interest exhibited by central banks and international financial institutions regarding the emergence of this new type of state-backed digital currency. CBDCs represent digital forms of central bank money that may serve as complement to cash and other payment instruments in a secure, efficient, and accessible payment environment, unlike cryptocurrencies, which operate on decentralized networks. While CBDCs offer promising features such as cost efficiency, security, and accessibility, several challenges, including design deficits, digital and financial literacy barriers, and regulatory considerations must be addressed to ensure their effectiveness. Through a systematic review of existing academic literature, empirical evidence and case studies from some developing or emerging economies, this study examines positive impacts as well as the challenges of these CBDCs in promoting financial inclusion. In particular, it investigates the theoretical mechanisms through which CBDCs could enhance access to financial services, and the challenges that may hinder their effectiveness. Furthermore, the analysis draws on a series of case studies from some of the early CBDC adopters, to identify the real-world impact of CBDCs on financial inclusion. The findings suggest that while CBDCs have the potential to bridge financial gaps, their success depends on strategic design and implementation as well as on complementary policies. The paper further discusses policy recommendations for designing CBDCs that maximize their potential as an inclusion-enhancing tool.