How would a Paraguayan CBDC affect financial inclusion and unbanked populations?
Executive summary
A Paraguayan central bank digital currency (CBDC) could materially expand access to digital payments and bank accounts if designed to overcome domestic barriers—by leveraging Paraguay’s existing digital financial services rollout and by targeting usability, distribution and privacy; however, gains are conditional and could trigger bank disintermediation or be blunted by infrastructure, literacy and design choices [1] [2] [3].
1. How CBDC could onboard the unbanked: the mechanics of access and accounts
CBDCs can act as a gateway for the unbanked by creating low‑cost digital wallets or by requiring a bank account in a two‑tier distribution model that incentivizes account opening; IMF modeling finds issuance can increase deposits from previously unbanked households when CBDC is valuable as a means of payment or embedded in bank-distributed wallets [1] [4]. Paraguay already has a history of e‑money and mobile remittances as entry points for the unbanked, which suggests a digital payments culture that a CBDC could amplify if distribution leverages mobile channels and interoperability rules set by the central bank [2].
2. The inclusion–disintermediation tradeoff: design matters
Greater CBDC adoption correlates with greater financial inclusion in models, but it also carries a risk of disintermediating banks if funds shift from deposits to CBDC holdings; IMF and related work emphasize that outcomes hinge on design trade‑offs—especially whether non‑bank providers can distribute CBDC and whether CBDC pays interest or substitutes for deposits [3] [1]. In Paraguay’s context, where deposit penetration is low, the literature suggests the inclusion benefits can outweigh disintermediation risks if liquidity risk at banks is low and the unbanked population is sizable [1] [4].
3. Practical levers that could help Paraguay reach the unbanked
Empirical and policy sources highlight several levers: make CBDC usable offline and on low‑end hardware to reach remote, low‑income users; keep fixed costs of usage low; partner with mobile providers and e‑money platforms that already onboard Paraguay’s unbanked; and build consumer protection and interoperability rules into the framework—measures the Central Bank of Paraguay has experience considering through earlier digital finance initiatives [5] [2] [6]. The Atlantic Council and IMF caution that CBDC is not a silver bullet—availability across devices helps, but gaps in electricity, networks, and digital literacy must be addressed [7] [5].
4. Data, credit building and formalization: second‑order inclusion effects
Beyond payments, CBDC transaction data can reduce information asymmetries and potentially help build credit histories for previously informal actors—IMF modeling shows this channel can increase lending when CBDC usage generates usable data and bank liquidity risk is manageable [1]. Latin American research argues CBDCs can also reduce informality and lower costs of domestic and cross‑border payments, outcomes particularly relevant in Paraguay’s largely cash‑oriented segments if uptake is broad [8].
5. Constraints and risks that could blunt inclusion gains
Several real constraints could limit impact: if CBDC imposes high fixed costs, requires strong ID without alternatives, or erodes trust through poor privacy protections, adoption among the unbanked will falter; studies show awareness and trust are key predictors of uptake, and digital divides in education, connectivity and electricity will block some users [6] [9] [5]. Moreover, if the design allows non‑bank distribution without requiring accounts, fewer new deposits may flow into banks and some benefits for lending and formalization could be lost [1].
6. Bottom line for Paraguay: conditional promise, not an automatic fix
For Paraguay, a CBDC could deliver meaningful financial inclusion gains because the country already has digital finance building blocks and regulatory attention to interoperability; yet those gains depend on concrete design choices—low‑cost access, offline functionality, account incentives when appropriate, consumer protections and outreach to raise awareness and trust—and on mitigating risks to banking stability and digital divides documented by IMF, Atlantic Council and AFI analyses [2] [1] [7]. If policymakers treat CBDC as one tool within a broader inclusion strategy rather than a standalone cure, the odds of banking the unbanked in Paraguay improve; otherwise, the promise may remain largely theoretical [5] [3].