The MIT Digital Currency Initiative and Maiden have released a report on central bank digital currency (CBDC) design choices and how this could affect financial inclusion.

A key difference between e-money, such as mobile money, mobile apps, e-money or cards, is that they are all intermediated, in contrast to cash, which is not. And many retail CBDCs plan to use intermediaries. That raises issues like cost, control, and trust.

The research specifies five areas that affect user perceptions, including custody, access, purpose, data, and distance.

While holding physical cash is comparatively risky, it provides control, and the report suggests enabling self-custody for a CBDC. The researchers interviewed potential end users in India, Indonesia, Nigeria and Mexico, highlighting the need for low-income users to maintain control over their earnings.

Sometimes it is a matter of trust, as in Mexico, where there have been several cases of fraud in financial cooperatives. But it’s also about trusting the intermediary to make payments promptly and being transparent about the fees involved. On the contrary, a key benefit of cash is simplicity.

A second problem relates to access because not everyone has a bank account. There is the challenge of needing formal identity documents for those without an account. Most CBDCs plan to limit transaction volumes and values ​​based on the level of identity provided, which could make CBDCs less inclusive without a digital identity program.

Another area to explore is the purpose of transactions, especially since cash transactions are instantly final. There is a trade-off between finality and whether a transaction can be reversed if there is an error in the amount or a dispute. The impact of human error is much more significant on someone living in poverty.

Data and privacy are already hot topics with CBDCs, but they may hit the poorest hardest. For example, the data could be used for micro-targeting or limiting how a user can spend a government benefit.

And finally, distance is one area where a digital currency could have clear benefits because remittances cannot be made in cash without going through MoneyGram or Western Union. But other problems, such as identity and costs, are exacerbated by remittances.

The report concludes that trust is essential. There is a paragraph that addresses the reservations of many potential CBDC users and our main concern about CBDCs in Ledger Insights. “Given the rise of authoritarian regimes around the world, the acceleration of the surveillance state, and the growing challenge of regulating the technology industry, it is far from obvious that citizens should trust a CBDC.”

Addressing these concerns will be critical to the adoption of any CBDC.