Financial Crime World

Mauritius Grapples with Financial Inclusion vs Exclusion: A CBDC Solution?

As the world moves towards a cashless economy, central banks are reassessing their approach to financial inclusion. The Republic of Mauritius is no exception, having already achieved over 90% financial inclusion among its population.

The Case for Central Bank Digital Currencies (CBDCs)

According to the International Monetary Fund (IMF), 68 countries have publicly discussed their work on CBDCs. While motivations, policy approaches, and technical designs vary across countries, CBDCs can address key issues such as:

  • Access to financial services
  • Efficiency in payment systems
  • Resilience in the face of disruptions
  • Mitigation of risks associated with privately developed cryptocurrencies

The Importance of Financial Inclusion

The World Bank’s Global Findex 2017 revealed that over 1.7 billion adults worldwide are excluded from the formal financial system. Financial inclusion is crucial for achieving developmental goals, as featured in eight of the United Nations’ Sustainable Development Goals (SDGs).

Mauritius’ Approach to Digital Financial Inclusion

The Bank of Mauritius is working on a retail CBDC, the Digital Rupee, under a two-tier hybrid model. This project aims to provide a digital payment instrument that will advance digitalization while offering a safe and reliable form of digital money.

Challenges and Concerns

However, there are concerns about unintended consequences if not properly implemented:

  • Reliance on smart devices and smartphones, particularly in least developed countries and emerging markets
  • The elderly population may struggle to adapt to new technology

Mitigating Risks and Ensuring Financial Inclusion

To ensure financial inclusion, it is essential to consider these challenges when designing and implementing CBDCs. The Bank of Mauritius has embarked on a cautious approach, working with the IMF on a feasibility study to analyze implications from monetary policy, legal, and regulatory perspectives.

  • Ongoing financial literacy and awareness programs will target the country’s ageing population
  • Cybersecurity risks, privacy concerns, and energy requirements associated with CBDC projects must be carefully considered

Conclusion

A well-designed CBDC can enhance financial inclusion in Mauritius, but it is crucial to mitigate associated risks and ensure the buy-in of all stakeholders. The country’s next step will be conducting proof-of-concepts with technology providers and academics before finalizing its pilot phase.