Unmet payment needs and a central bank digital currency

Christopher Henry, Walter Engert, Alexandra Sutton-Lalani, Sebastian Hernandez, Darcey Mcvanel and Kim Huynh
Additional contact information
Walter Engert: Bank of Canada, Canada
Alexandra Sutton-Lalani: Bank of Canada, Canada
Sebastian Hernandez: Bank of Canada, Canada
Darcey Mcvanel: Bank of Canada, Canada

Journal of Digital Banking, 2023, vol. 8, issue 3, 242-255

Abstract: This paper analyses the payment habits of Canadians both in the current payment environment and in a hypothetical cashless environment. The paper also considers 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. Most consumers, however, 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 would also 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. Adoption by the majority may have added policy implications that are beyond the scope of this paper.

Keywords: bank notes; central bank research; digital currencies and FinTech; financial services (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Unmet Payment Needs and a Central Bank Digital Currency (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:aza:jdb000:y:2023:v:8:i:3:p:242-255

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