Central Banks: Driving CBDC adoption as 18% do not have bank accounts

Researchers at the Central Bank of the Bahamas estimate that 18% of Bahamians are unbanked, and cutting that number in half could reduce economic instability in the Bahamas.

The bank recently published a working paper on its first digital currency, the sand dollar, which shows adoption remains low at 7.9%.

The Sand Dollar was launched in the fourth quarter of 2019. Since then, according to researchers, the circulation has tripled, and as of July 2022, the circulation is $303,785.

While the pandemic has reduced transactions and their value, the number of wallets in use has increased to over 32,000.

“We are using a two-agent New Keynesian (TANK) model to assess CBDC implementation in the Bahamas. As these individuals gain access to financial institutions, the share of hand-to-hand agents in the economy will decline.The number of unbanked individuals is currently estimated to be around 18%.” researchers said.

“If this number were cut in half, economic gains would include reduced volatility for all shocks. Fiscal policy will become more Ricardian and mitigate the scale of the fiscal shock.

“If the adoption rate halved the number of unbanked people, the volatility caused by policy shocks (government spending and monetary policy) would be greatly reduced. The intuition of this result is When households cannot save, they rely heavily on policy to make the “right” economic decisions. The volatility pass-through can be substantial if policymakers give the economy a big shock. more so than at low adoption rates,” the researchers said.

“Temporary alternatives are essential for households to make optimal consumption/saving decisions. For example, if non-savers were hit by a monetary policy shock (higher interest rates), they would normally allocate their consumption to the future as interest rates rise. Downward pressure on prices: a positive monetary policy shock lowers inflation, but the inability of non-savers to curb consumption eases central bank restraint on inflation. When the number of savers is high, inflation control is significantly reduced, so a CBDC could foster an environment that improves monetary policy outcomes.”

Educational campaigns by commercial banks and e-money service providers are essential to improving Sand Dollar adoption, researchers say.

“Town hall meetings, virtual seminars and workshops should also be pursued as a means of reaching the general public. must be involved in a way that makes it highly accessible and accessible.”

“As relevant to further research areas, the authors hope that the initiatives currently being taken, coupled with these recommendations, will lead to a significant increase in adoption. Merchants and consumers are also expected to pursue more digital payment options as we phase out check cashing and prepare to phase out checks entirely by December 2024. As rates increase, it may be worth measuring the impact of macro aggregation to see improvements.”

Researchers include Alan Wright, Shabonne C. Mackenzie, Lance R. Bodie, and Carlitha L. Bell. Central Banks: Driving CBDC adoption as 18% do not have bank accounts

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