Let us first define our terms. We are using cross-border payments here to refer to transfers where the payer and payee reside in different jurisdictions. While these payments can be made for tourism, investment, etc., we focus on a particular situation: workers migrating away from their homelands, and remitting money back home. These cross-border retail remittances are a huge and growing market.
For most migrant workers, however, the experience of transferring money is beset with significant challenges, since many of them are under- or unbanked. These issues can force migrant workers to use informal, unregulated channels. Together, these problems present a real barrier to financial inclusion, i.e., access to sustainable and useful financial products and services,1 for a significant proportion of the working population globally.
Once the issues are laid out, it will be apparent that central bank digital currencies (CBDCs) have a lot of potential to help migrant workers resolve these pain points in the remittance process and achieve real financial inclusion.