Central bank digital currencies need bigger incentive to succeed, researchers find

For a central bank digital currency to be a success, there has to be a bigger incentive than convenience to adopt it, researchers say in a paper published by the International Monetary Fund.

In the paper, Tanai Khiaonarong and David Humphrey examine the level of cash use and demand for a CBDC across 11 countries: Australia, China, Denmark, Germany, India, Japan, Netherlands, Norway, Singapore, the UK and the US.

Demand for CBDC would be larger in countries with higher cash use, the researchers say. However, they find that without additional incentives, the demand for CBDC is likely to be below that of the current level of physical cash in an economy.

“For users, that incentive is greater convenience by not having to travel to an ATM or bank branch to withdraw cash. This makes a central bank digital currency only as convenient as a bank debit card, not better,” they say.

They suggest central banks could provide CBDC at zero cost, eliminating interchange fees, as an additional incentive.

The results suggest cash use across the countries is falling by an average of 1.3–2.2% a year. The authors conclude that demographic change and the preference for non-cash payments by younger members of the population is the likely explanation for the decline.