Brazil, India and Russia are, by far, the countries where money lost the most space, in absolute terms, in the means of payment in the period from 2012 to 2020. This scenario indicates that money substitutes are preferred by users and that could impact demand for central bank digital currencies (CBDCs) in retail
The information is from the study “Falling Use of Cash and Demand for Retail Central Bank Digital Currency” by Tanai Khiaonarong and David Humphrey. The authors analyzed 25 countries. And it considered the share of the value of cash used, that is, withdrawn from ATMs, in relation to the cash market. This market includes cash, cards, and digital money (electronic payments).
The adoption of CBDCs is likely to grow in terms of cash and cards if they offer more than these two payment methods. And this is the model that the Central Bank of Brazil thinks of having for the digital real, as it also thinks of decentralized finance (DeFi). “Being similar to a debit card with peer-to-peer functionality (direct transactions between people or companies) may not be enough.
IMF says CBDC will grow as a form of payment
The fall in Brazil, for example, due to the regulations that allowed fintechs to advance. But the IMF also includes factors such as the launch of the PIX and the economic crisis, which benefited deferred payments on cards.
According to the agency, in 2015 alone the fall in the share of money in the total money market was 22 percentage points, when card purchases rose 9 percentage points. Therefore, the reduction was much larger than the average 1.7 percentage point reduction in cash share over the period across all countries in the study. There was a drop of 17 percentage points over three years, the Fund said.
The percentage of money use was 44% in 2019, and from 2012 until then, there was an annual reduction of 6.5%. Sweden and Japan also had larger reductions than Brazil, at 7.5% and 7.2%, respectively. However, they came from different backgrounds and with that, they reached a percentage of cash use of 8%, in the case of the Swedes, and 11% in the case of the Japanese, in 2019.
One of the other conclusions of the study is that the age issue is one of the factors that also help to explain the use of money. Younger people tend to prefer digital means of payment. Thus, the next generations already come with this demand, reinforcing the trend. The study can be viewed on the IMF website.