Experts warn of CBDC danger while first uses flop

It is a fallacy that CBDCs are a substitute for cash and can improve financial inclusion and help the unbanked.

They will in fact be used to kill off cash.

As Lord Desai, LSE Economics Professor, said in the House of Lords: "It is not so much that it [the UK CBDC] does not solve a problem but that it will create one. The most significant problem it will create is that it will deprive ordinary people of easy access to cash".

Central banks which are promoting CBDCs claim that they will help improve financial inclusion, but that's not true, as experts have pointed out.

Andrew Cregan, of the British Retail Consortium, says CBDCs are not “in any way” a substitute for cash: “I do not envisage that individuals who have been so reticent over using card payments over the years … will jump on the CBDC bandwagon and abandon cash."

"People use cash either for budgetary purposes or for concerns around security or fraud.....reasons that will not be affected by the creation of a CBDC,” he says.

Of course, as the House of Lords Select Committee on Financial Exclusion noted, “digital exclusion is likely to have a particularly significant impact on those who are already most at risk of financial exclusion.” CBDCs will of course enhance that digital exclusion.

Moreover, eminent Professor Barry Eichengreen has explained how "the argument that giving the unbanked the CBDC equivalent of a bank account would allow them to obtain services and credit on the more favourable terms available to the banked is specious."

"Possession of an account with a commercial bank is a signal of financial stability and reliability; it is not surprising that it is associated with superior access to credit. A CBDC that was available to everyone unconditionally would not signal anything," noted Prof Eichengreen.

Of course the Bank of England says it doesn't want CBDCs to substitute for cash, but just to be an alternative.

But what happens when very few people take up CBDCs? The inevitable temptation will be to reduce the attractiveness of cash, as has already happened in Nigeria. Nigerians shunned the CBDCs that were introduced in 2021. Less than 0.5% of Nigerians use them, while by contrast over 50% use cryptocurrency. So the Central Bank limited cash withdrawals to $225 per week for individuals and $1,123 for businesses.

The Bahamas CBDC, the world's first, is a flop. Virtually no-one uses it.

Launched in 2021 the “Sand Dollar” as the Bahamas CBDC is named, has been praised by CBDC enthusiasts. PwC called it the “world’s most mature CBDC” and the OMFIF said it was "a bold, people-first design supported by pioneering technology."

The problem that it was supposedly meant to solve was financial exclusion, especially in the more remote Exuma islands within the Bahamas chain. That’s not really a problem as 93% of Exumans had a deposit account and 90% had a debit card. 

Bahamians, whether in Exuma or elsewhere, have rejected the CBDC.

The IMF found that “the CDBC currently makes up less than 0.1 per cent of currency in circulation and there are limited avenues to use the sand dollar.” The precise figure is 0.0631% of currency in circulation.

There are $338,908 of CBDCs in circulation, compared to over $30m in coins and $506m Bahamian issued bank notes (plus at least as many US dollars). As the LSE commented in a research paper this means that "the sand dollar barely registers as a form of currency."

Let the lesson from experts and use examples be heard. When it comes to CBDCs, don’t bother.

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