CBDC, Fintech and cryptocurrency for financial inclusion and financial stability
| DOI | https://doi.org/10.1108/DPRG-04-2022-0033 |
| Published date | 23 November 2022 |
| Date | 23 November 2022 |
| Pages | 40-57 |
| Subject Matter | Information & knowledge management,Information management & governance,Information policy |
| Author | Peterson K. Ozili |
CBDC, Fintech and cryptocurrency for
financial inclusion and financial stability
Peterson K. Ozili
Abstract
Purpose –The purpose of this study is to discuss the role of central bank digital currency (CBDC),
Fintechand cryptocurrency for financialinclusion and financial stability.
Design/methodology/approach –This study used critical discourse analysis to identify the benefits
and risksof CBDC, Fintech and cryptocurrencyfor financial inclusion and financialstability.
Findings –Fintech, CBDC and cryptocurrency can increase financial inclusion by providing an
alternative channel through which unbanked adults can access formal financial services. CBDC and
Fintech serviceshave the potential to preserve financial stability,while cryptocurrency presentsfinancial
stabilityrisks that can be mitigated through effective regulation.This paper also identified some problems
of CBDC, Fintech and cryptocurrency for financial inclusion and financial stability. This paper offered
some insightabout the future of financial inclusionand the future of financial stability.
Practical implications –Although CBDC, Fintech or cryptocurrency can extend financial services to
unbanked adults and offercost-efficient advantages, there are risk considerationsthat need to be taken
into account when using CBDC, Fintech and cryptocurrency to increase financial inclusion and to
preservefinancial stability.
Originality/value –The literature has not identified the combined role of CBDC, Fintech and
cryptocurrency for financialinclusion and financial stability. To the best of the author’s knowledge, this
paper is the first paper to assess the combined role of CBDC, Fintechand cryptocurrency for financial
inclusionand financial stability.
Keywords CBDC, Fintech, Cryptocurrency, Financial inclusion, Financial stability, Blockchain,
Central bank digital currency
Paper type Conceptual paper
1. Introduction
Scholars disagree about the role of Fintech, central bank digital currency (CBDC) and
cryptocurrency for financial inclusion and financial stability. Cryptocurrency is not even
considered to be a positive contributor to financial inclusion and financial stability. In fact,
Cumming et al. (2019),Taher and Tsuji (2022) and Bateman (2020) dismiss Fintech, CBDC
and cryptocurrency as “over-stretched” determinants of financial inclusion and financial
stability because they can be manipulated and used to achieve goals that serve private
interest rather than public good. From this perspective, Fintech, cryptocurrency and CBDC
do not promote financial inclusion and financial stability if they serve private interests. They
only promote financial inclusion and financial stability when they serve public interest.
Fredman and Phillips (2022),Buckley et al. (2019),FSB (2022a), Deng et al. (2021) and
Petrou (2018) reject the idea that digital financial innovation naturally improves financial
inclusion and financial stability. They reject the idea because they believe that it
underestimates the hidden risks inherent in digital financial innovation that can hinder
financial stability and financialinclusion.
A major reason for the disagreement in the literature is because research that clarifies our
understanding of the role of digital financial innovation for financial inclusion and financial
Peterson K. Ozili is based
at the Governors
Department, Central Bank
of Nigeria, Abuja, Nigeria.
Received 2 April 2022
Revised 18 June 2022
18 September 2022
Accepted 27 October 2022
PAGE 40 jDIGITAL POLICY, REGULATION AND GOVERNANCE jVOL. 25 NO. 1 2023, pp. 40-57, ©EmeraldPublishing Limited, ISSN 2398-5038 DOI 10.1108/DPRG-04-2022-0033
stability are shallow and are not abundant in the literature. Existing research do not
demonstrate a clear-cut channel through which Fintech, cryptocurrency and CBDC
promote financial inclusion and financial stability. In fact, the few studies that examine the
role of Fintech, cryptocurrency and CBDC for financial inclusion and financial stability often
downplay inherent risks in digital financialinnovation (Philippon, 2016;Kim and Kwon, 2019;
Sotiropoulou and Gu
egan, 2017). This observation in the literature gives rise to the need for
research that clarifies our understanding of the role of Fintech, cryptocurrency and CBDC
for financial inclusion and financial stability. Such research will have policy implications and
shape the future of financial inclusion and financial stability. Research about the role of
these digital financial innovations for financial inclusion and financial stability is important
because it will influence the priority that policymakers attach to digital financial innovation
for financial inclusion and financial stability reform. There is need for research that
establishes a convincing framework that demonstrates the channel(s) through which digital
financial innovation, such as CBDC, Fintech and cryptocurrency, promotes financial
inclusion and financial stability, and the implication for the future of financial inclusion and
financial stability. Having identified this gap in the literature, this paper fills this gap in the
literature.
Therefore, the purpose of this paper is to present a discussion about the role of CBDC,
Fintech and cryptocurrency for financial inclusion and financial stability. In terms of
definition, financial technology(or Fintech) is defined as the use of technology and software
to improve the processes of financial institutions and to improve the delivery of financial
services to end users (Vives, 2017;Ozili, 2018). CBDC is commonly defined as money
available in digital or electronic form (Tronnier, 2020). Cryptocurrency is commonly defined
as a digital currency in which encryption techniques are used to regulate the generation of
units of currency and to verify the transfer of funds without needing a financial intermediary
or central bank (Lexico, 2020). These three digital financial innovation (CBDC, Fintech and
cryptocurrency) have disruptedtraditional finance by providing an alternative way to deliver
financial services, and they alsohave risk implications.
The focus on CBDC, Fintech and cryptocurrency in this study is because CBDC, Fintech
and cryptocurrency have become very popular among regulators, financial institutions,
citizens and amongthose who do not want to be regulated. CBDCis popular among central
banks; Fintech is popular among financial institutions, while cryptocurrency is popular
among ordinary people and those who want the democratization of financial services. The
recent COVID-19 pandemic reinforced the benefits of Fintech and cryptocurrency as they
allowed people to engage with financial services remotely without needing intermediaries
during the pandemic, and it helped to reduce frictions in the payment system during the
pandemic. Fintech,cryptocurrency and CBDC present an opportunity for the global financial
system to transform itself to facilitate efficient payments, improve financial inclusion and
reduce systemic risk when appropriate regulations are in place. In this paper, I discuss
some recent financial innovation particularly Fintech, cryptocurrency and CBDC and the
implications forfinancial inclusion and financial stability. The paperreviews the development
of financial innovation with particular focus on CBDC, Fintech and cryptocurrency, and it
identifies implications for financial inclusion and financial stability. It also points out some
problems that arise from using CBDC, Fintech or cryptocurrency-based financial services. It
further identifieshow CBDC, Fintech and cryptocurrencymight change the future of financial
inclusion and thefuture of financial stability. The discussion in this paperbuilds on the theory
of finance and growth, which argues that financial sector agents use diverse financial
instruments (including financial innovations) to ease financing constraints, which enable
financial institutions to increase creditsupply to support production and investment activities
that contribute to economic growth (Levine, 2005). And because meaningful economic
growth cannot be achieved without financial stability and high levels of financial inclusion
(Kim et al.,2018;Carb
o-Valverde and S
anchez, 2013), it makessense to draw a connection
between financial innovation, financial stability, financial inclusion and economic growth. In
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