LAC CBDC considerations TAB L E 2 Consideration Description High cash use The LAC region as compared to other regions has a pronounced difference in cash use trends. Compared to central banks in other jurisdictions, LAC central banks report less decline in cash use.18 Thus, CBDC would need to offer similar features to cash such as offline payments and self-custody. Informal economies The LAC region has a series of significant informal economies, where a substantial portion of economic activity occurs outside the formal banking sector. This phenomenon makes up between 20-80% depending on the jurisdiction.19 CBDC development in LAC needs to consider the unique characteristics and challenges associated with integrating the informal economy into the digital financial system. Remittances The LAC region is a major recipient of remittances, with many countries relying on these inflows for their economies. During 2021, LAC received $127.6 billion in remittances, which constitutes an annual growth of 26.0%, the highest registered in the past 20 years.20 CBDCs in LAC may prioritize enhancing the efficiency and reducing the costs of cross-border remittances, aiming to provide affordable and secure remittance solutions for migrants and their families. Financial inclusion challenges While financial inclusion is a priority globally, the LAC region faces specific challenges in this regard. CBDC experimentation in LAC focuses on addressing barriers to financial access for marginalized communities, including Indigenous populations, and rural areas, aiming to bridge the digital divide and promote inclusive growth. Dollarization Some countries in the LAC region, such as Ecuador and El Salvador, have adopted the US dollar as their official currency. CBDC experimentation in these countries may explore the potential for hybrid models, where CBDCs can coexist or interact with existing dollarized systems, addressing unique monetary policy and financial stability considerations. Small island nations The Caribbean region consists of many small island nations with unique economic and geographic characteristics. CBDC experimentation in these countries needs to prioritize solutions tailored to their specific needs, such as resilience to natural disasters, cross-border transactions and tourism-related challenges. Regional integration The LAC region has ongoing efforts for regional economic integration, such as the Caribbean Community (CARICOM) and the Pacific Alliance. CBDC experimentation in LAC considers the potential for harmonization and interoperability of digital currencies across countries, aiming to facilitate trade, investment and financial integration within the region. LAC CBDC priorities: Most central banks in the region are prioritizing retail CBDC research and development, and have a few key motivations for a possible future issuance of a CBDC. Motivations for issuing a CBDC in LAC F I GUR E 3 Retail Wholesale Others Financial inclusion Payments efficiency (domestic) Paymemts safety/robustness Financial stability Payments efficiency (cross-border) Monetary policy implementation 1 2 3 4 Others Financial inclusion Payments efficiency (domestic) Paymemts safety/robustness Financial stability Payments efficiency (cross-border) Monetary policy implementation 1 2 3 4 LAC EMDEs* AEs** *Emerging market and developing economies **Advanced economies Note: 1 = “Not so important”, 2 = “Somewhat important”, 3 = “Important”, 4 = “Very important”. Source: BIS central bank survey on CBDC. Central Bank Digital Currency Global Interoperability Principles 10
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