Ira Aprilianti (Senior Policy Analyst, DFS, AFI), Adeyemi Omotoso (Policy Manager, DFS, AFI), Dr. Gabriel Bizama (Researcher, University of Bern)

Central banks are showing significant interest in Central Bank Digital Currencies (CBDCs). According to the Bank for International Settlements’ 2024 survey, 91% of the 93 participating central banks reported they were exploring a retail CBDC, a wholesale CBDC or both. Wholesale work was more advanced than retail CBDC work, while motivations, use cases and design choices varied across jurisdictions.

At the same time, fast payment systems (FPS) are increasingly providing real-time, low-cost and widely accessible payment services across emerging and developing economies. This raises an important policy question: where an FPS or a broader digital payments ecosystem is already established, what additional public value could a retail CBDC provide?

This question framed the fifth edition of the AFI Digital Financial Services Working Group (DFSWG) Policy Conversation Series. The session drew on comparative research led by co-author Gabriel Bizama across Brazil, India, Ghana and Nigeria. Rather than presenting FPS and CBDCs as mutually exclusive choices, the discussion examined the circumstances in which they may complement, compete with or converge towards one another.

Many adoption barriers sit beyond the payment rail

The research presented combined surveys of 1,000 adults and merchants in each country with focus groups in urban, semi-urban, and rural areas, as well as interviews with central banks, fintechs, mobile money providers, and international organisations. This evidence base helped compare not only the performance of payment systems, but also the wider conditions shaping adoption and use.

Across the four markets, the research identified barriers including connectivity constraints, continued preference for cash, fraud and security concerns, failed transactions, uneven merchant acceptance, and gaps in digital financial capability. The relative importance of these barriers—and the effectiveness of complaints handling and other safeguards—vary by market. Some arise from the capabilities of the payment rail, while others reflect the wider regulatory, market and user environment in which that rail operates.

This distinction is also relevant to CBDC design. Retail CBDC pilots are often established to test specific technical, operational, legal or policy propositions; they are not necessarily intended to resolve every constraint affecting digital payment adoption. However, a CBDC introduced at scale would operate within many of the same conditions as other digital payment instruments. Users may rely on similar devices, connectivity, merchants, agents and service providers, while regulators will still need effective arrangements for consumer protection, privacy, cybersecurity, market conduct and redress. Evidence on barriers to FPS use therefore provides a useful diagnostic: it helps identify which constraints a new form of central bank money could address through design, and which require complementary policy or institutional action.

Fraud illustrates the importance of this distinction. In India, 26 percent of survey respondents cited security and fraud concerns as a reason for not using UPI; in rural and remote areas, that figure rose to 42 percent. The research highlighted exposure to social-engineering tactics including impersonation, fraudulent cashback links and “digital arrest” scams. A new rail alone would not remove user-level vulnerabilities or resolve weaknesses in consumer protection and redress. A retail CBDC would therefore need to combine secure technical design with proportionate safeguards, clear liability arrangements, accessible reporting and complaints mechanisms, and sustained digital financial capability initiatives.

The study also found that some micro-merchants in India route digital payments through personal or family UPI accounts to limit exposure to GST obligations. This behaviour is relevant to the comparison between FPS and CBDCs because it illustrates how payment choices may respond to fiscal incentives, not only to the functionality of the rail. A different payment instrument may not materially change those incentives unless payment fees/charges, tax and merchant-formalisation policies are considered together.

The broader lesson is not to delay innovation, but to improve diagnosis and sequencing. Before investing in an additional payment infrastructure, policymakers should distinguish between gaps in rail functionality and barriers arising from regulation, incentives, trust, capability or coordination. The appropriate response may involve CBDC design, enhancement of the existing FPS, wider policy reform, or a combination of all three.

Where might a well-designed retail CBDC add distinct value?

1. Offline functionality: participants value cash because it is widely accepted, settles immediately between parties, and can be used without network connectivity, a preference which reflects practical considerations of cost, reliability and access. A retail CBDC designed for offline use could reproduce some of these characteristics in digital form, while preserving a direct claim on the central bank. In addition, offline capabilities ensure continuous payments processing in the event of a system outage. This potential should be framed carefully: FPS-linked products are also developing limited offline functionality, including USSD for mobile money in Ghana and Nigeria. The more distinctive CBDC proposition may therefore be the combination of offline transferability, central bank money and cash-like resilience, not offline payments alone.

Delivering that proposition is technically and institutionally demanding. Offline design requires choices on value limits, double-spending controls, device security, lost-device treatment, reconciliation, privacy, financial integrity and the allocation of liability. These considerations should be tested against the realities of the intended users and operating environment.

2. Government-to-person payments and targeted use cases: a CBDC may add value here, particularly where cash remains important for wages, subsidies and market transactions. The policy objective may include improving delivery efficiency, reducing leakage, supporting better targeting and creating a pathway into formal financial services. A programmable CBDC with G2P functionality could support these objectives if it is designed around recipient needs, acceptance conditions and appropriate safeguards. As the RBI’s fintech department noted in interviews, the e-rupee’s potential to complement UPI may include reaching Indian adults who have not yet used UPI.

Whether a CBDC would improve reach or delivery in practice would still depend on the existing transfer architecture, and on whether its design avoids reproducing barriers related to identity, devices, connectivity, acceptance and digital capability.

Purpose-bound or conditional functionality may also support specific public-policy use cases. However, programmability should not be treated as an unqualified benefit. Its use raises questions about legal authority, user autonomy, privacy, interoperability, expiry conditions and recourse. Any such feature should therefore respond to a clearly defined policy need and be supported by transparent governance and safeguards.

3. Competition and contestability: CBDC architecture that permits open, interoperable and non-discriminatory wallet access could support greater contestability in concentrated payment markets.  A public payment instrument does not automatically create competition, however; outcomes will depend on access rules, technical standards, pricing, interoperability and the respective roles of public and private providers.

Pix in Brazil demonstrates how low-cost payment infrastructure can improve outcomes for merchants, with reported average transaction costs of 0.3 percent compared with 1.5 percent for debit cards and up to 5 percent for credit cards. While Pix is an FPS rather than a CBDC, its experience reinforces a broader lesson: architecture and participation rules can materially influence cost and competition. A CBDC could reinforce competitive pressure if it provides open and equitable access, but it should be designed to complement, rather than unnecessarily duplicate or displace, effective private and public solutions.

4. The nature of the claim and institutional trust: a retail CBDC is a direct claim on the central bank, unlike commercial bank deposits or most forms of e-money. This distinction may matter in markets where users have experienced failures of financial institutions, or remain concerned about the safety of funds held with intermediaries.

This potential trust proposition is context-specific. Confidence in central banks, governments and private providers varies across and within jurisdictions, and trust cannot be assumed merely from the identity of the issuer. It must be supported by credible governance, understandable protections, operational reliability and clarity about how users’ data and funds will be treated.

Lessons from Jamaica’s experience

Jamaica’s experience with JAM-DEX, one of the world’s first live retail CBDCs, is worth noting. JAM-DEX represents approximately 0.1 percent of currency in circulation, but with encouraging uptake in some rural communities. This demonstrates that issuing a CBDC and achieving sustained use are different stages of the policy journey. Adoption depends on relevant use cases, user trust, merchant acceptance, accessibility and interoperability with the wider financial ecosystem; these do not follow automatically from issuance.

A CBDC is unlikely to achieve sustained adoption if users and merchants perceive it simply as another way to make payments already served effectively by existing instruments. Its case is stronger where it addresses a clearly evidenced gap, or delivers a public value proposition that other arrangements do not adequately provide.

Key questions central banks should ask themselves

1. What specific problem are we seeking to solve, and where does its underlying cause lie? Policymakers should distinguish rail-level limitations from constraints related to consumer protection, literacy, merchant incentives, fiscal policies such as taxes and levies, connectivity, identity, market structure or institutional coordination.
2. What distinct or complementary value would a CBDC provide? Potential answers may include resilient access to central bank money, carefully designed offline functionality, specific government-payment use cases or improved contestability.
3. Who are we seeking to reach, and what conditions are necessary for sustained use? Adoption is shaped by users’ capabilities, security concerns, trust, connectivity, merchant acceptance and economic incentives. A CBDC strategy should therefore specify its intended users and use cases, while addressing accessibility, interoperability, privacy, cybersecurity, consumer protection, redress and the roles of public and private actors.

Conclusion

Policymakers should investigate how a retail CBDC can serve specific national objectives, what additional value it would provide, and whether the enabling conditions exist for that value to be realised.

Fast payment systems have already transformed the speed, cost and reach of digital payments in many jurisdictions. Where an FPS is functioning effectively, but adoption remains constrained by weaknesses in protection, incentives, capability or coordination, strengthening the enabling environment may produce greater near-term impact than introducing an additional rail. This does not preclude a CBDC. It helps clarify its purpose, sequencing and design.

Well-designed retail CBDCs may extend access to central bank money, improve resilience and support use cases that existing arrangements do not yet serve adequately. Their contribution is likely to be greatest when they are designed as part of an integrated digital financial architecture, interoperable with existing systems, responsive to user needs and supported by the policy, regulatory and institutional foundations required for sustained adoption.