Unmet Payment Needs and a Central Bank Digital Currency

Christopher Henry, Walter Engert, Alexandra Sutton-Lalani, Sebastian Hernandez, Darcey McVanel and Kim Huynh

No 2023-15, Discussion Papers from Bank of Canada

Abstract: We discuss the payment habits of Canadians both in the current payment environment and in a hypothetical cashless environment. We also consider whether a central bank digital currency (CBDC) would address unmet payment needs in a cashless society. Most adult Canadians do not experience gaps in their access to a range of payment methods, and this would probably continue to be the case in a cashless environment. Some people could, however, face difficulties making payments if merchants no longer generally accepted cash as a method of payment. For a payment-oriented CBDC to successfully address unmet payment needs, the main consumer groups—who already have access to a range of payment options—would have to widely adopt the CBDC and use it at scale. This is necessary to encourage widespread merchant acceptance of CBDC, which would, in turn, encourage further consumer adoption and use. However, most consumers face few payment gaps or frictions and therefore might have relatively weak incentives to adopt and—especially—to use CBDC at scale. If that were the case, widespread merchant acceptance also would be unlikely. This suggests that addressing unmet payment needs for a minority of consumers by issuing a CBDC could be challenging under the conditions explored in this paper. The minority of consumers with unmet payment needs will only be able to benefit from a CBDC if the majority of consumers experience material benefits and therefore drive its use.

Keywords: Bank notes; Central bank research; Digital currencies and fintech; Financial services (search for similar items in EconPapers)
JEL-codes: C C9 E E4 O O54 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2023-08
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: Unmet payment needs and a central bank digital currency (2023)
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