THE CASE FOR DIGITAL LEGAL TENDER and its Impact on Financial Inclusion

Jonathan Dharmapalan, Carolyn Hall McMahon, Kim Wilson


The case for digital legal tender is a compelling one. It suggests that a central bank ought to have a portfolio of currency levers at its disposal, not just its current one – physical cash. Transitioning from private e-money schemes to a legally issued digital currency will enhance the suite of financial inclusion tools already in place, offer ’cash’-only households a more secure and interoperable foray into digital transactions, and augment consumer choices of how to manage household incomes and out-flows.


Table of Contents


PREFACE ...............................................................................................7 EXECUTIVE SUMMARY...............................................................9 PART I: CONTEXT Introduction: Advances in Financial Inclusion.............15

The Goals of Financial Inclusion ..........................................17

Currency: The Original Instrument of Inclusion .......19

Digital Payments..............................................................................22 PART II: A PROBLEM Chinks in the Armor: Problems with E-Money & Paper Currency....................23 PART III: A SOLUTION Central Bank Issued Digital Legal Tender .............................................. 27

The Included Citizen: The Digital Curency Customer Experience .................. 30

Institutional Rationale: Incentives For Governments To Embrace.................... 37 PART IV: CONCLUSION...................................................................41 REFERENCES........................................................................................ 45

ABOUT THE AUTHORS..................................................................47

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