HomeCBDCIMF CBDCA Dual Approach to Central Bank Digital Currency Adoption

A Dual Approach to Central Bank Digital Currency Adoption

The paper explores the factors that contribute to the success of central bank digital currencies (CBDCs) in achieving their goals. It emphasizes the importance of both consumers adopting CBDCs and merchants accepting them. The study develops a dynamic two-sided payments model that considers the adoption of CBDCs by households and firms, as well as the impact of CBDC issuance on financial inclusion, informality, and disintermediation. The model reveals a feedback loop, where increased adoption by households encourages more firms to accept CBDCs and vice versa. To incentivize adoption, CBDCs should be low-cost, provide attractive savings options, reduce remittance costs, improve government payments efficiency, and offer valuable means of payment if accepted by merchants. Firms are more likely to accept CBDCs if transaction fees are low, tax exemptions or subsidies are provided, and a significant portion of their revenue comes from households using CBDCs. The paper suggests that temporary subsidies and using CBDCs for government payments can stimulate initial adoption and transition to a welfare-enhancing state with higher CBDC usage. The greater adoption of CBDCs can lead to increased financial inclusion and formalization, but it may also result in the disintermediation of banks and card payments. Therefore, there is a trade-off in designing CBDCs to achieve widespread adoption. However, the benefits are likely to outweigh the risks in lower-income economies with larger unbanked populations and informal sectors.

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