Working Paper: Financial Inclusion and Central Bank Digital Currency in The Bahamas

Published: Friday September 23rd, 2022

Abstract

We use a two-agent, New Keynesian model (TANK) to assess the introduction of CBDC in The Bahamas. We assume that CBDC will lead to a decrease in the number of unbanked in The Bahamas. As these individuals acquire access to financial institutions, the fraction of hand-to-mouth agents in the economy falls. The current number of unbanked individuals is estimated to be roughly 18%. If this number is cut in half, the economic benefits include: a reduction in the volatility of all shocks; monetary policy is more effective at controlling inflation and contributes less to the volatility of the overall economy; fiscal policy becomes more Ricardian, mitigating the size of fiscal shocks.