The Subtle Art of Slow: The CBDC Adoption Journey

Through the "slow and steady" adoption of CBDCs, central banks can ensure their place in the competitive arena of digital money, Digital Euro Association Chairman Jonas Gross and Executive Director Conrad Kraft write.

AccessTimeIconNov 15, 2023 at 9:06 p.m. UTC

In the era of rapidly evolving monetary systems, central bank digital currencies (CBDCs) have emerged as a new frontier.

Already live in various developing and emerging market economies — namely Nigeria (e-Naira), Jamaica (Jam-Dex), the Eastern Caribbean Central Bank (DCash) and the Bahamas (Sand dollar) — these national digital currencies seek to reshape our economic interactions.

However, reactions to these fledgling systems have been a mixed bag. While central banks hoped for quickly-embracing citizen response, the reality has been a slower uptake than expected.

This slower pace may be viewed as disappointing by some, but is it really as underwhelming as it appears? Or is it, perhaps, simply reflecting another aspect of how transformative technologies often find their footing amidst hesitance and a lack of understanding? Could it be that "slow and steady" isn't a setback but rather a necessary, anticipated part of the CBDC adoption process?

We will address these questions in this article with lessons from history on payment innovation as well as CBDCs launched in developing and emerging market economies.

Unlike the rapid viral adoption witnessed in social media platforms and conversational artificial intelligence (AI) like ChatGPT, the cautious and gradual acceptance of CBDCs, can be seen as the standard trajectory historically observed in the introduction of novel monetary instruments, reflecting the prudence and meticulous validation typically exercised in the financial sector to safeguard stability and trust in monetary innovations.

CBDCs are navigating a path characterized by deliberation and measured, but consistent, growth. The philosophy of "slow and steady" isn't simply a lack of urgency by citizens to use CBDCs or a failure to kickstart into a sprint. Instead, it's also a thoughtful, measured approach that, albeit seemingly slower, is endorsed by its benefits. CBDCs aren't stepping into a void, but rather into a bustling, ever-crowded digital money landscape, making it all the more crucial to build a stable foundation amidst this clamor.

Adopting CBDCs at a slower pace contributes to sustainability, allowing for rigorous tests and updates to technology, fostering a comprehensive policy creation process and encouraging stepwise public awareness.

Through gradual CBDC adoption, central banks ensure they find their “sweet spot” in the furiously competitive arena of digital money.

Current state and the slow march of CBDCs

The slow and steady CBDC adoption can be seen in different jurisdictions worldwide. Numerous countries, including India and China, are running pilot programs to assess the viability of CBDCs. Launched CBDCs:

  • Bahamas: Launched Sand dollar in October 2020
  • Eastern Caribbean countries: Started introducing DCash in March 2021
  • Nigeria: Launched eNaira in 2021
  • Jamaica: Launched JAM-DEX in 2021

Each of these four countries has launched CBDCs with a focus on financial inclusion, yet the adoption rates remain relatively low. The following figure compares the four CBDCs.

  • Bahamas: Sand dollar is reported to have had an adoption rate of 7.9%. The adoption rate reflects the proportion of Sand dollars in circulation relative to the total number of Bahamian dollars circulating within the country as of 2022. Many Bahamians still prefer to use debit and credit cards instead.
  • Eastern Caribbean Currency Union: After the two-week outage in 2021, questions were raised about the long-term adoption of DCash.
  • Nigeria: The International Monetary Fund mentioned that eNaira's adoption was disappointingly low, with only 860,000 retail wallet downloads by mid-November 2021.
  • Jamaica: As of March 2022, there were 190,000 JAM-DEX users, with low adoption rates resulting in multiple incentives being rolled out to boost usage.

While banks and financial institutions worldwide experiment with CBDCs and launch pilot programs, it is clear that adoption remains steady, albeit slow. A key takeaway, however, is that there is a consistent and growing interest in CBDC globally, even as authorities proceed with caution.

Little by little becomes a lot: Navigating the slow adoption landscape

When assessing the adoption rate of CBDCs, it is useful to compare their trajectories to other transformative technologies or financial services that have, over time, become integral in our lives. Disruptive innovations such as credit cards, online banking and digital wallets and mobile payment systems like Google Pay or Apple Pay have all exhibited a gradual widening of their user base.

A comparison can be made to the introduction of other major technologies.

  1. Modern credit cards: Invented in the 1950s, credit cards didn't see widespread adoption until decades later, as infrastructure, regulations and trust in these financial tools matured over time. For example, it wasn't until the Fair Credit Reporting Act in 1970 and the Equal Credit Opportunity Act in 1974 that clear rules for fair lending were established, eliminating rampant discrimination. Despite skepticism and high-levels of defaulting, long-term consumer trust in credit cards was gradually built through consistent regulatory oversight and value-added services, effectively paving the way for their widespread use today.
  2. Online banking: Internet banking was introduced in the late 1980s, but saw slow and steady adoption as concerns around online security, computer literacy and access to the internet were addressed. The journey began with United American Bank offering the first home banking service in 1980. Shortly after in 1981, New York City became a testing ground for remote services, with four major banks providing home-banking access. The U.K. followed suit in 1983 with Bank of Scotland launching the Homelink service. Stanford Federal Credit Union revolutionized the scene in 1994 by offering internet banking services to all of its customers. By 2006, approximately 80% of all U.S. banks provided internet banking services. In 2009, the world saw the establishment of its first all-digital bank, Ally Bank. As of 2022, 80% of banking customers globally use mobile banking technology regularly, signifying the constant evolution of online banking.
  3. E-wallets: Digital wallets and mobile payment systems such as Apple Pay experienced a similar journey, gradually making headway in the market as people became aware of their convenience, versatility and security. Adoption rates skyrocketed as more merchants began accepting mobile payments and e-wallets became more user-friendly.

Reasons for slow adoption and roll-out

  1. Consumer behavior: Adopting new technology takes time as people need to become familiar with and trust the technology, especially when dealing with finance matters.
  2. Infrastructure development: For CBDCs or other developments to succeed, a robust and scalable infrastructure must be in place to support them. Building this infrastructure is an incremental process.
  3. Policy and regulation: As novel technologies emerge, governments and regulatory authorities need time to formulate relevant policies, ensuring the protection of users and maintaining market stability. The establishment of such frameworks can take time and require constant revision as technology, usage and interactions with numerous components of the monetary ecosystem mature.
  4. Competition: Disruptive innovations often enter markets with already established solutions (e.g., cash, existing digital payment systems). It takes time to convince users that the new products or services are worth changing their habits for.

Patience is bitter, but its fruit is sweet: Benefits of gradual adoption

There are substantial benefits to the steady adoption of technology. Patience does bear fruit, especially when it concerns something as potentially disruptive as CBDCs. Let's explore some benefits along with relevant examples:

  1. Gradual user acceptance and learning: Slow adoption enables people to become comfortable at their own pace. They can learn about the technology, understand its implications and adapt their behavior to use it effectively. This gradual approach fosters trust and acceptance, critical for financial technologies. For instance, consider how contactless payments initially struggled with user trust; over time, as people familiarized themselves with the technology, it has become a common method of transaction in many countries.
  2. Adequate time for testing and improvement: Slower adoption provides developers ample time to test their technology rigorously, identify flaws and make necessary improvements. Building reliable and secure technology is a process of continuous refinement. Microsoft's iterative update approach with Windows is a prime example — each version based on extensive user testing and feedback, allowing for improved security and functionality.
  3. Thoughtful regulation and policy making: Technology often advances much more rapidly than legal frameworks can adapt. Taking time for thoughtful regulation helps ensure CBDCs operate within a legal environment that anticipates potential issues, mitigating harm to users while facilitating innovation. Careful regulation creation also offers the protection individuals need in a quickly evolving digital world towards fostering trust in new monetary mediums.
  4. Economically stable introduction: Rapid adoption of a financially pivotal technology like CBDCs could in the most extreme case lead to economic instability. By allowing the introduction to occur slowly, economies can adapt smoothly, preventing shocks. The gradual rollout of Social Security in the U.S. during the 1930s provides an example of how major financial programs can be introduced carefully to prevent economic turbulence. This is also why (temporary) limits on CBDC holdings are a promising way to enable a smooth transition into a world with CBDC.

Slow and steady wins the race: The road to widespread CBDC adoption

While it would be convenient to have a precise time frame for CBDC adoption, it’s critical to understand that adoption isn't a one-size-fits-all process due to the varying economic contexts and technological infrastructures across countries. Instead, let's rely on indicators from the benefits discussed above.

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CBDCs aren't stepping into a void, but rather into a bustling, ever-crowded digital money landscape, making it all the more crucial to build a stable foundation amidst this clamor.
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If we consider the adoption timeline of technologies akin to CBDC, such as online banking or mobile wallets, we can estimate a 10-20 year timeline for CBDCs to reach maturity from inception, just as these services did. However, the landscape is different today — technology adoption rates have accelerated due to increased global connectivity and tech-savvy populations. Therefore, in an optimistic scenario, we might see widespread adoption in countries with robust digital infrastructures within the next 5-10 years.

It's critical to remember, though, that this timeframe should not be a rushed deadline but perceived as a balancing act of gradual public acceptance, regulatory readiness and technological robustness. Scaling CBDCs is less a sprint and more a patient journey to ensure stable, secure and efficient digital currencies for everyone.

Prudence over pace: How 'haste makes waste' in the realm of CBDC adoption

Let's take a moment to ponder the flip side of the coin. While the previous section highlighted the numerous benefits of a measured approach to adopting CBDCs, it's equally crucial to consider what could go awry with an approach that prioritises velocity over meticulous planning and strategic foresight.

Adoption stagnation

Adoption stagnation refers to a scenario where the uptake of CBDCs plateaus, failing to gain the intended traction among users. This could stem from various factors such as technological barriers, lack of public awareness or skepticism regarding the utility and safety of using CBDCs.

Stagnation in adoption not only hampers the potential benefits that CBDCs can bring to the financial ecosystem, such as enhanced payment efficiency and financial inclusion but also may deter further investments and innovations in the digital currency space.

It’s imperative that central banks and policymakers actively engage in creating an environment that fosters trust, education, and ease of use to avoid stagnation and ensure gradual growth in adoption.

Loss of relevance (rise in alternatives):

The loss of relevance in the context of CBDCs pertains to the overshadowing of these digital currencies by alternative digital assets, such as cryptocurrencies and other private digital currencies. As the digital asset landscape continues to evolve, a plethora of alternatives with potentially more attractive features, such as decentralized finance (DeFi) platforms and tokenized deposits, are emerging.

These alternatives might offer enhanced privacy, investment opportunities or global reach, which could divert attention and utilization away from CBDCs. Central banks, therefore, face the challenge of ensuring that CBDCs remain relevant, innovative and competitive beyond the initial uptake by offering distinct advantages, robust security and integrating features that align with user needs and global trends all while adoption grows steadily.

Policy objective hindrance

The hindrance of policy objectives refers to the potential impediments in achieving the desired economic and financial goals set by policymakers and central banks due to ineffective CBDC design and implementation. CBDCs seek to foster financial inclusion, and enhance payment system resilience, amongst others. However, if CBDCs fail to function as intended, due to a focus on fast adoption, it could inadvertently obstruct the achievement of these policy objectives.

Steady as she goes: Facilitating the steady growth of CBDCs

Let’s pivot towards a few key factors that can guide this gradual transition. While there are myriad factors that contribute to the successful adoption of CBDCs, in this section, we'll touch upon selected pivotal aspects, providing a glimpse into the multifaceted world of digital currency implementation and the strategic considerations that can guide a stable and well-received rollout.

Together, these elements form a solid foundation upon which the gradual and stable growth of CBDCs can be facilitated and sustained.

Continuing efforts in education and awareness

As the introduction and adoption of CBDCs require substantial time and effort, promoting education and awareness should be fundamental. Educational endeavors would focus on different aspects of CBDCs, including their benefits, potential risks and usability. By highlighting the potential benefits that could be reached with a promising CBDC design, like offline, digital, private payments and wide acceptability, stakeholders can encourage adoption.

Meanwhile, providing transparency about potential drawbacks or vulnerabilities could also help prepare end-users and limit shocks and surprises.

Maintaining a focus on technological advancements and security

To ensure steady growth of CBDCs, it's crucial to focus on technological advancements and security. Constant development and improvement in technological infrastructure can accommodate increasing transaction volumes and global usage. Safeguarding transactions with robust security practices is imperative to protect against potential threats and to instill confidence among users.

Prioritizing safety precautions and continuous upgrades will be key in maintaining trust and meeting users' evolving needs. The trajectory of CBDC adoption, like other digital innovations, is set to be intrinsically tied to the evolution and advancement of technology as a key enabler and catalyst for widespread adoption.

Encouragement of regulatory development that supports CBDC growth

Regulatory support is another major factor in facilitating the growth of CBDCs. Establishing clear, harmonized regulations is needed to provide a stable and consistent environment for growth. Central banks and financial regulators should engage in policy-making efforts that adequately protect individuals and entities against financial risks, upholding transparency while promoting innovation and advancement in this domain.

Collaboration

In the intricate web of CBDC adoption, collaboration emerges as a cornerstone, bridging the gap between conceptualization and practical implementation. Engaging merchants, commercial banks, payment service providers (PSP) and other intermediaries in the CBDC development and adoption processes is not merely a strategy but a necessity, ensuring that the digital currency seamlessly integrates into the existing financial and commercial landscape.

  • Merchants: Their role is pivotal in ensuring that CBDCs are accepted widely across various sectors and industries, facilitating everyday transactions for consumers. Engaging with merchants helps in understanding their needs, challenges and expectations from a digital currency, ensuring that the CBDC framework is designed to address these aspects.
  • Commercial banks: These entities play a crucial role in the distribution and management of CBDCs, acting as an interface between the central bank and the public. Their involvement ensures that CBDCs are not just circulated but also managed effectively, adhering to the monetary policies and regulatory frameworks.
  • Payment service providers: Facilitate smooth, secure and efficient transactions involving CBDCs. Collaborating with payment service providers ensures that the CBDC transactions are integrated into the existing payment networks, providing users with a familiar and efficient transaction experience.

Through a symbiotic relationship among these entities, CBDCs can be seamlessly interlaced into the financial network of society, ensuring that the transition is not just technologically sound but also commercially viable and user-friendly.

Slow and steady wins the race

The process of CBDC adoption cannot and should not be rushed. As the saying goes, "slow and steady wins the race."

A gradual approach allows citizens, regulators and financial entities to understand, adapt and incorporate CBDCs effectively into the existing monetary architecture. By maintaining a consistent, manageable pace, security measures can be put in place, learning curves can be flattened and potential economic shocks mitigated.

Moreover, encouraging acceptance and support for a steady expansion pace of CBDC usage can help counter resistance that may stem from a lack of understanding or fear of the unknown. A community that accepts and comprehends the CBDC would be better equipped to integrate it into their everyday lives, making digital currencies a welcome reality, rather than an intangible concept.

As the global economy shifts towards digital innovation, recognizing the importance of a "slow and steady" approach will be crucial in ensuring the successful integration of CBDCs into our financial systems.

While we argue that “slow and steady” is a sound approach for successful CBDC implementation, we would also like to emphasize the need for robust value propositions. CBDCs must offer unique features that surpass the capabilities of existing monetary systems.

A CBDC that merely replicates current digital money, differing only in its central bank backing(largely imperceptible to citizens), won't attract widespread citizen use. While we support a gradual, methodical rollout, we maintain that without distinct advantages/incentives, this approach is unlikely to gain traction.

Remember, citizens are the primary users of CBDCs.


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Jonas Gross

Jonas Gross is chairman of the Digital Euro Association (DEA) and chief operating officer at etonec.

Conrad  Kraft

Conrad Kraft is an executive director at the Digital Euro Association, evaluator for the MIT Sloan Blockchain Technologies course and author of the CBDC Chronicles newsletter.


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