The Central Bank of Honduras has launched a two month consultation on the potential of a retail central bank digital currency (CBDC). Financial inclusion would be a key objective closely followed by cross border payments, in particular remittances.
With help from the International Monetary Fund (IMF), the central bank which is still at the CBDC research stage, published a paper on the future of money and payments.
As context, Honduras is a relatively low income country with around 60% of its almost ten million population living in poverty. In terms of financial inclusion, in 2021 just 37.85% of citizens over the age of 15 had bank accounts according to the World Bank. A significant proportion of GDP (25.9%) comes from family remittances. Hence the potential CBDC objectives of inclusion and remittances seem logical.
That’s especially the case given 81% of the population has a mobile phone and 72% have mobile internet with 52% having broadband access.
One of the goals of a potential CBDC might be to create a central bank retail payment system that operates 24/7 with instant settlement. A faster payment system already exists in Honduras, ACH PRONTO. It is privately owned by banks with almost immediate settlement and operates every day between 5am and 10pm with shorter hours on some days. The key challenge is PRONTO currently only includes banks, although a reform to expand participants has been approved by the central bank.
Apart from banks, savings and credit cooperatives also play a significant role in Honduras. And another potential goal is for a CBDC to enable greater interoperability between the various payment systems that currently exist.
One point of note is that electronic money has not yet developed significantly in Honduras. On the one hand that represents an opportunity with CBDC for the central bank. On the other hand, why has it not developed further?
The IMF suggested that Honduras look to CBDC and retail payment developments in Brazil and India. These countries have very different approaches to CBDC. Given the success of Brazil’s PIX retail payment system, it’s sidestepping a retail CBDC and piloting a wholesale CBDC that underpins bank deposit tokens mainly for securities and DLT settlements. In contrast, despite the success of India’s UPI retail payment system, it is embracing both retail and wholesale CBDC.
Meanwhile, three of the four currently live retail CBDCs are from countries that are Caribbean neighbors of Honduras. They include Jamaica’s JAM-DEX, the Bahamian Sand Dollar and DCash in the Eastern Caribbean.