Latam Insights Encore: Colombian CBDC Won't Fly Unless It Comes With Hefty Incentives

The announcement of an existing central bank digital currency (CBDC) pilot in Colombia raised some eyebrows this week.

The announcement of an existing central bank digital currency (CBDC) pilot in Colombia raised some eyebrows this week. Living next to Colombia, and having an understanding of how the financial system works in that country, I believe that it is still too soon for the implementation of such a currency.

Now, there is a great opportunity for the Colombian government to bring people into the financial system without passing through banks, which introduce friction to this process.

Colombians still rely on cash as a payment method for most of their purchases. According to numbers from the Colombian Central Bank, close to 80% of all the transactions included cash in 2024, a number that has changed little since 2022. This number is higher among low-income individuals, who signal that cash is faster and easier to use, and distrust electronic methods due to the possible fraud associated with them.

A central bank digital currency (CBDC) will have to fight these preconceptions to modernize the payments system, which is still largely cash-based, even with a financial inclusion of over 90%.

To do this, it would have to be introduced with hefty incentives, like discounts or savings benefits for the citizens involved. Credit might be an interesting weapon to incentivize citizens to a hypothetical CBDC, as only 36.2% of Colombian adults have access to some kind of credit product. Special credit promotions could also make Colombians embrace this new currency, also introducing it as a payment method in the same way.

I find this mission pretty difficult, considering that cash usage numbers did not move significantly during the COVID-19 even with all the risks associated with handling cash at that time. Nonetheless, the currency is still in its pilot stages, and there is still no news about its final introduction.