The Massachusetts Institute of Technology’s Digital Currency Initiative (DCI) released findings of a 15-month research project focused on retail central bank digital currency (CBDC) design in low- and middle-income countries such as India, Indonesia, Nigeria, and Mexico. Despite the increasing interest in CBDC, the report highlighted a lack of practical insight into how CBDC can improve access to financial services. The researchers analyzed CBDC design options, financial infrastructure, and user experiences, emphasizing the differences between intermediated and non-intermediated (cash) payments.
The report noted that all existing CBDC pilots and projects use intermediated models and did not take a stance on the use of intermediation and blockchain or distributed ledger technology (DLT). The focus was on governance and trust issues rather than the technological capabilities of DLT. The researchers compared affordances in intermediated and non-intermediated systems, discussing the real-world uses and challenges for vulnerable users, especially the quarter of the world’s adult population who are unbanked and lack identification.
Trust emerged as a significant concern for vulnerable users, particularly in the context of authoritarian regimes, surveillance states, and the challenges of regulating the technology industry. The report highlighted the need for trust in a CBDC, raising questions about whether people should trust such a system considering the complex geopolitical landscape. The report concluded with a list of a dozen related research topics for further exploration in this field.
The MIT DCI’s paper emphasizes the potential benefits of CBDC in promoting financial inclusion and outlines the necessary preconditions for achieving this goal. The research highlights the importance of understanding how CBDC can address the existing gaps in financial services access and support inclusion initiatives in developing countries. By examining real-world examples and user experiences, the report provides valuable insights into the design considerations for successful CBDC implementation.
The report’s neutral stance on intermediation and blockchain technology reflects a pragmatic approach to evaluating CBDC design options. The focus on governance, trust, and user experience underscores the complexity of implementing CBDC in a way that truly benefits vulnerable populations. By addressing trust issues and exploring practical challenges, the report aims to guide policymakers and industry stakeholders in developing effective strategies for promoting financial inclusion through CBDC.
Overall, the MIT DCI’s research represents a valuable contribution to the growing body of work on CBDC and financial inclusion. By highlighting the potential risks and benefits of CBDC, the report offers a comprehensive analysis of the key considerations for policymakers and practitioners in this field. As the debate around CBDC continues to evolve, the insights provided by this research will be essential for shaping the future of digital currency and financial services access globally.
Discussion about this post