Central Bank Digital Currency (CBDC) is a digital form of currency issued and backed by a central bank, which would bring significant benefits (more efficient payment, financial inclusion, instant settlement, etc.) to the economy. To achieve its public policy goals, it would need to be widely adopted and actively used by individuals, businesses, and other institutions. It requires the development of reliable and secure CBDC system infrastructure, but also effective education and communication to encourage adoption and build trust in this new currency.
Today, over 95% of the countries are investigating CBDCs. Some of those projects are already live or in pilot phase: eCNY (China), e-Naira (Nigeria), Sand Dollar (Bahamas), Digital Rupiah (India), etc. with the number of ongoing initiatives across the world demonstrating the growing enthusiasm for CBDC.
In China, over 261 million users currently possess an E-CNY Wallet, with a total transaction volume exceeding USD 15 billion. E-CNY deployment began with strategic targeting of key cities across the country (Shanghai, Beijing) and gradually expanded to 23 cities where the currency is now accepted as a payment method.
Additionally, seven commercial banks and two online banks integrated the E-CNY pilot. The Chinese government is moving forward to expand the use of E-CNY and offer incentives in the form of vouchers to encourage adoption. For example, the local government in Shenzen distributed E-CNY vouchers to support the city’s catering industry. Furthermore, super-apps such as Alichat and Wechat have also integrated E-CNY in their wallet.
In Nigeria, the adoption of e-Naira has been challenging due to low levels of trust in the government. Although more than 800,000 people currently use an e-Naira wallet, transaction volumes remain low due to a lack of confidence in the system. This is also due to limited communication about the e-Naira project, which led to disinterest of the population and merchants.
To increase adoption, the Nigerian government considered reducing the service charge for merchants by 50% and reduce the overall supply of cash in the country by a third. To compensate, they minted over 10 billion e-Nairas. The last decision was controversial and led to a crisis and strike in the country, even though it resulted in a 63% increase in transaction value.
Despite the challenges, the Nigerian government remains committed to promoting the adoption of e-Nairas and is taking steps to address the concerns of both merchants and the population.
The Central Bank of Bahamas launched its CBDC, the Sand Dollar, in October 2020. However, adoption rates remained low. Although end-user adoption is relatively high, with 50% of active workers owning a CBDC wallet, this a not sufficient to consider the Sand Dollar as an adopted payment method. If we look at it from a merchant’s perspective, only 1500 merchants are accepting the currency, counting for 7% of all merchants. To address this issue, the government considered prioritising merchant training and awareness in 2023 to expand the merchant network. Additionally, Sand Dollar Ambassadors have been hired to promote usage and raise awareness of the benefits.
Adoption seems a critical challenge faced by all countries rolling out CBDCs. Local governments used various approaches such as incentivisation, education, or restraint, to promote the adoption of their local digital currency. Nevertheless, the most effective approach depends on the specific constraints of the local environment. Therefore, developing a clear plan is necessary for successful adoption.
Privacy is a fundamental right and is highlighted by the user as a key concern. Even if a gradual shift to digital payments implies less privacy by default, if the proper design choices are made, CBDC would preserve cash-like features.
Specifically, central banks should have visibility on the minimum transaction data required to validate the transaction. In different CBDC pilots, we’ve seen an increase in usage of aliases, which could be useful to represent a user’s identity and preserve anonymity.
The adoption of CBDC will rely on central banks’ ability to address privacy concerns effectively and ensure individual’s rights are protected.
The issue of privacy surrounding CBDCs is closely tied to the public's trust in public institutions, which is why commercial banks could play a crucial role. As trusted partners of the public, commercial banks can help promote CBDC adoption by offering assurance regarding the safety and security of CBDC holding.
Not limited to trusted partners, commercial banks will also have an active role in CBDC adoption. Firstly, as distributors, they are responsible for the onboarding process and act as the bridge between central bank and the public.
Secondly, commercial banks have the potential to integrate CBDC into their existing payment systems, such as banking apps. By doing so, they can offer a seamless experience for end-users, which would accelerate the adoption of CBDC. Furthermore, it could also lead to the development of future features, such as cross-border transactions and micro-transactions.
As CBDC integration becomes a competitive advantage, it's likely that all banks will eventually have to integrate it. This trend is similar to the rise of Apple Pay, where users tend to favour banks that have integrated the technology.
Finally, it is essential to consider both end-user and merchant perspectives when evaluating CBDC adoption. As evidenced by the Bahamas’ experience, merchant adoption and public adoption are two sides of a coin, being interconnected and interdependent.
For merchants, CBDC can bring significant benefits:
Instant settlement enables faster access to funds while reducing the risk of fraud
Reduce the fees and dispute, as it provides a clear and transparent record of payment transactions
Accelerate time to market as it becomes easier to accept payments
Despite the benefits, merchants desire seamless integration. In a survey about Digital Currencies acceptance, merchants have expressed concerns about the complexity of integrating digital currencies with their existing financial infrastructure. Therefore, to integrate CBDC payment methods, it would be best to use the same rails that are currently in place.
In summary, adoption of CBDCs can be fostered through multiple approaches. While the strategy may differ, two fundamental components should remain as the foundational pillars of CBDC launch: trust and transparency.
At Worldline, we believe that collaboration between central banks, commercial banks, and financial third parties is essential. To ensure adoption, it is important that the CBDC payment experience is perceived as convenient and comparable to what currently exists. We encourage all stakeholders to engage in a transparent dialogue to design a roll-out plan to make its launch a success.
Are you interested in learning more about how central CBDC could reshape the global economy? Visit Worldline | Central Bank Digital Currency (CBDC): The Future of Money
Thibault is a skilled Product Manager at Worldline specialised in digital currencies. He is deeply passionate about driving innovation and is committed to shaping the future of finance through his work with Stablecoin, blockchain technology, and CBDCs. Thibault derives fulfillment from exploring the transformative potential of these cutting-edge technologies. Thibault's previous experiences highlight his strong interest in the Finance and Digital Industries, having worked for many years in investment banking.
Worldline helps businesses of all shapes and sizes to accelerate their growth journey – quickly, simply, and securely. With advanced payments technology, local expertise, and solutions customised for hundreds of markets and industries, Worldline powers the growth of over one million businesses around the world. Worldline generated EUR 4.4 billion in revenue in 2022.
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