Banking the Unbanked! How CBDCs Help with Financial Inclusion

Daniel Urbánek
Daniel Urbánek
September 14, 2023
News, Education

Explore the potential of Central Bank Digital Currencies (CBDCs) in shaping financial inclusion. Can they truly bank the unbanked and reform our financial system?

In an era where cashless transactions are becoming the norm, Central Bank Digital Currencies (CBDCs) emerge as a forward-thinking solution, but they also raise important questions. As nations dabble with the adoption of CBDCs, there's an increasing need to think about their implications, not just for the technologically advanced countries, but for all.

This article delves into CBDCs, their promise of financial inclusion, and whether their universal application can benefit everyone. Understand the stakes, the solutions, and the future we might be stepping into.


  • CBDCs, digital currencies issued by central banks, promise enhanced financial efficiency, monetary policy, and higher financial inclusion for the underserved.
  • Low financial inclusion is caused by a big part of the population not having access to basic financial services, like banking, savings, loans, etc.
  • CBDCs could in theory foster financial inclusion by lowering the barriers to digital finance, not requiring a bank account, and making remittances cheaper.
  • Many conditions have to be met in building a functioning CBDC system. Ripple has developed its own CBDC platform, making this step easier for financial institutions.

A Quick Recap on CBDCs in General

Central Bank Digital Currencies (CBDCs) are essentially digital versions of a nation's fiat currency, issued and regulated by its central bank. Operating on a digital platform, they're directly linked to the underlying fiat currency, offering cash-like functionalities, such as value storage and transaction facilitation, albeit digitally.

Related: Digital Dollar Domination: Discover the Global Surge in CBDCs

While CBDCs pose some similarities to crypto, there are also important distinctions that should not be overlooked:

  1. CBDCs are centralized. Issued and regulated by the state's national bank. Crypto is decentralized and censorship-resistant.
  2. CBDCs can but do not have to use Distributed Ledger Technology (Blockchain). Because of their centralized nature, many other systems can be used.
  3. CBDCs serve as a tool of state monetary politics, meaning they can carry interest rates, track transactions, and be collateralized for bank loans.

Why is Financial Inclusion a Problem?

Financial inclusion refers to equal and fair access to financial services, such as banking, loans, investment, payment infrastructure, and so on. The problem with financial inclusion is that some parts of the world are more inclusive than others.

More about this topic: Cryptocurrency in Latin America: The Game Changer for Emerging Economies

Particularly in third-world countries a big part of the general population simply does not have access to basic financial services. This further limits their economic capabilities and growth, very often trapping them in poverty. The Global Findex research of 2021 found that around 1.7 billion adults worldwide do not have access to banking services (are “Unbanked”).

The worst conditions were found in Yemen, Somalia, and Afghanistan, where only a small percentage of the adult population (around 15%) actually have a bank account.

Can CBDCs Help the Unbanked?

Let's have a look at how CBDCs could help tackle this problem with financial inclusion. Of course, all of this is highly theoretical and so far there has not been enough practical data to support these statements.

Cross-border Payments - One of the barriers to financial inclusion is the high cost and lengthy duration of cross-border transfers. CBDCs could streamline this process, making it cheaper and faster to send money internationally. This is particularly important for countries with a significant portion of their population working abroad and sending remittances home.

Universal Access and Low Costs - With CBDCs, individuals would no longer need to rely on physical bank branches. Anyone with a smartphone or even basic internet access could potentially have an account, eliminating barriers related to distance or infrastructure.

Financial Empowerment - CBDCs could allow governments to make direct transfers to citizens, be it stimulus packages, pensions, or subsidies. This ensures funds reach the intended beneficiaries swiftly, reducing bureaucratic delays and eliminating intermediaries that might skim off the top.

Greater Transparency and Reduced Corruption - Digital transactions are traceable, and while this does raise concerns about privacy, it also means reduced corruption, ensuring that funds intended for social welfare programs or subsidies reach the intended beneficiaries.

First Practical Implementations: Nigerian eNaira

As one of the first examples of practical CBDC implementation in 2021 Nigeria released its eNaira, hoping it will foster financial inclusion and build economic growth for the country.

This first implementation however was not met with much success. The digital currency would in theory provide citizens with day-to-day financial services by using the eNaira app, but the problem is that not many of them actually used it. Less than 0.5% of Nigerian citizens used eNaira shortly after its launch.

In order to push the adoption of digital finance, the Nigerian National Bank started to withdraw excess cash from circulation. After this move, the eNaira adoption increased more than 12 times but is still quite low considering the overall Nigerian population.

Designing a Fair Financial System

A well-structured CBDC should not only replicate the features of physical currency in a digital realm but should also address the inherent shortcomings of the existing financial system. Here are some of the pivotal conditions that such a system should meet to ensure a thriving economy:

  • Universal Accessibility - One of the primary aims of CBDCs is to ensure that every individual, regardless of their socio-economic status or geographic location, can access and use the currency. This requires simple, user-friendly interfaces, as well as affordable access points like mobile phones or internet kiosks.
  • Straightforward use - The use of digital money and onboarding should be very intuitive in order to drive more adoption.
  • Economic Incentives - In addition to the straightforward use, economic incentives, such as higher interest rates should also apply. There has to be a reason for citizens to use CBDCs instead of their regular banks.
  • Economic Stability - The introduction of a CBDC should not disrupt the existing monetary system. Its design should ensure that it complements rather than competes with traditional banking solutions, preventing bank runs or sudden shifts in monetary value.
  • Education and Awareness - To be truly inclusive, potential users need to understand how to use CBDCs safely and effectively. This necessitates comprehensive educational campaigns and resources, especially targeting those who are new to digital transactions.

The Role of Ripple in CBDCs

Ripple is a blockchain-based payments company that is developing a platform for central banks to issue and manage their own CBDCs. Ripple's CBDC platform is designed to be scalable, secure, and interoperable, making it a potential solution for central banks that are looking to develop their own CBDCs.

For this purpose, Ripple is using an updated version of their Ripple Private Ledger, which now stems from the current XRP Ledger. The CBDC suite contains everything a financial institution needs to develop a fully operational custom digital currency - from minting, tokenomics, payment infrastructure, and security to end-user wallets.

Ripple has been working with a number of central banks around the world to explore the use of its CBDC platform. In 2023, Ripple announced that they are working with the Republic of Palau to launch their CBDC pilot. Montenegro has also chosen the Ripple platform to test the possible use cases of CBDCs.

The Final Take

Central Bank Digital Currencies (CBDCs) carry the potential to revolutionize the financial world, offering benefits like increased financial inclusion and more efficient monetary policy. However, their real-world implementation requires careful design, taking into account both technological and societal factors.

While CBDCs could indeed pave the way for more equitable financial systems, their introduction is not without challenges. It's crucial for both policymakers and the public to approach the CBDC wave with a mix of optimism and skepticism, ensuring that they don't just replicate the limitations of our current systems in a digital format.

Disclaimer: The content of this piece reflects the writer's opinion. This article is not intended to provide financial advice and is meant solely for entertainment and educational purposes. Investing in cryptocurrency involves significant risk. Capital is at risk, and returns are not guaranteed. Always conduct your own research.

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