By Fernando Restoy, Chair of the Financial Stability Institute, Bank of International Settlements 

The majority of the 1.4 billion people around the world who remain unbanked live in just seven jurisdictions: China, India, Pakistan, Indonesia, Bangladesh, Egypt and Nigeria. According to a Statista survey, on average, 25% of respondents from these seven countries indicated that they own and use cryptoassets. Nigeria, at 47%, stands at the very top of the global ranking. 

Of the many solutions being touted to achieve financial inclusion for all, one of the most intriguing is digital assets. The narrative goes that cryptoassets will provide easy access to financial services, and offer unbanked or underbanked populations a mechanism for making financial transactions.  

It is my view however that by themselves, cryptoassets cannot address the main causes of lack of financial inclusion. They may in fact result in unintended consequences, particularly when it comes to consumer protection.  

In this regard, the speed at which cryptoasset ownership and use is taking off should give us pause for thought. The average financial literacy rate for those seven countries listed above is just 26%, according to a global survey by Standard & Poor’s. Given the striking similarity of that percentage to the one on cryptoasset ownership and use (25%), one can only hope that the financially literate population are the same ones dealing with cryptoassets.  

Realistically, it is clear that large numbers of people with low financial literacy and digital skills are diving headfirst into cryptoassets. This to me highlights the importance of putting in place safeguards to protect consumer rights, otherwise the unbanked could end up jumping from the frying pan into the fire.  

Conscious of the limitations of cryptoassets and the concerns surrounding them, many see the need for public intervention in the form of Central Bank Digital Currencies (CBDCs). However, it is still an open question for central banks whether retail CBDCs aimed at the public or other policy interventions are the best fit for enhancing financial inclusion in their jurisdictions.  

We recently produced a joint paper with the World Bank where we assessed CBDC through the lens of the guidance on payments aspects for financial inclusion (the PAFI framework). A range of payment innovations – such as open banking, fast payments and CBDC – particularly if accompanied by robust regulatory and oversight arrangements to catalyse private sector players, were identified as having the potential to drive access to, and usage of, transactional accounts. 

So CBDC is not unique in this case. Its only differentiating factor is that it represents a direct claim on the central bank.  

If, motivated by financial inclusion, a central bank chooses to issue a CBDC, they will need to take a number of design features into account. These include offline functionality, programmability, integrity and data portability. In light of the above, my message to central banks, financial regulators, and all who care about financial inclusion is as follows:  

• We need to ensure that appropriate and relevant financial products, services and instruments are available and accessible to people. depending on their needs, risk profile and tolerance.  
• Financial inclusion solutions need to be accompanied by relevant regulations that address unintended consequences, such as those on consumer protection. 
• We should be ready to provide public solutions, either to address the absence of, or complement private solutions to, the financial inclusion problem.  

If we can achieve all this, we can look forward to living in a society where the unbanked no longer feel they are left to their own devices, and thus have to make stark choices.