## Editor’s Letter

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**Canonical URL:** [Editor’s Letter](https://www.imf.org/-/media/files/publications/fandd/article/2025/09/editors-letter.pdf)

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### Overview
- Three years ago, Finance & Development devoted a full issue to anticipating “The Money Revolution,” driven by innovations in finance, such as crypto assets. That revolution is now unfolding.
- This issue of F&D examines new frontiers of finance where technology, data, and changing societal values are reshaping how people and institutions move money and trade financial assets, who provides liquidity, and where new risks are brewing.
- The issue brings together academics and policymakers to assess a complex and politically charged landscape that “generates excitement and anxiety in equal measure.”

### Stablecoins: Opportunities and risks
- Description:
  - Stablecoins are a form of digital asset backed by currencies or government bonds.
  - Stablecoin companies have racked up millions of users globally, transacting across borders 24/7 at very low cost.
  - New legislation in the US and other countries may further boost their growth.
- Benefits highlighted:
  - “Faster and cheaper cross-border payments.”
- Risks highlighted:
  - “Risk of dollarization, capital flows and exchange rate volatility, potential weakening of the banking system, money laundering and other financial crimes.”
  - Hélène Rey: while hard to forecast exact outcomes, widespread adoption of US dollar–denominated stablecoins is “likely to create major financial stability risks.”
  - Yao Zeng: “Stablecoins may function well in good times, but they can falter under stress.”

### Changes in financial intermediation and market structure
- Structural shifts:
  - “Lightly regulated nonbanks are providing more liquidity.”
  - Lenders increasingly rely on AI and big data to speed loan approvals, reduce collateral requirements, and reach borrowers traditional banks often overlook.
- Competitive dynamics:
  - “New entrants like fintechs and big techs, and new products like crypto and stablecoins, are challenging incumbent financial institutions.”
  - Iñaki Aldasoro, Jon Frost, and Vatsala Shreeti (Bank for International Settlements) explore how competition among new entrants and incumbents might unfold and conclude that “forward-looking public policies must accompany radical innovation to achieve the most impactful breakthroughs.”

### Public-sector responses and payment-system innovation
- Public and private roles:
  - Both sectors are driving innovation; some governments and central banks have responded to private payment initiatives by sponsoring systems that meet consumer demand for fast, efficient payments.
- Case example:
  - IMF researchers examine India’s Unified Payments Interface, which interconnects hundreds of banks, platforms, and apps and carries out more than 19 billion transactions a month.

### Crime, enforcement, and regulatory balance
- Criminal use and enforcement challenge:
  - Criminals were among the earliest adopters of crypto; all payment systems need to balance privacy and speed with the need to stop tax evasion, money laundering, and terrorism financing.
  - Stanford’s Darrell Duffie and coauthors lay out a practical approach to getting ahead of the curve.
- Regulatory tension:
  - The global financial landscape has changed, yet “the rules remain largely unchanged,” creating potential gaps in oversight and enforcement.

### Policy implications and recommendations
- Core policy objective:
  - Balance the risks and benefits of payment- and finance-related innovations through clear regulation that protects consumers and investors and limits spillovers.
- Specific considerations:
  - Anticipate and mitigate financial stability risks associated with widespread stablecoin adoption, including dollarization and banking-system weakening.
  - Update regulatory frameworks to address lightly regulated nonbank liquidity providers and AI- and data-driven lending practices.
  - Design policies that accompany radical innovation to maximize beneficial breakthroughs while containing systemic risks.
  - Maintain vigilance on anti–money laundering, tax compliance, and counterterrorism-financing measures while preserving legitimate privacy and efficiency gains.

### Closing
- There is significant room for innovation in payment systems and financial markets in general to meet user demand for faster, cheaper services.
- The key is balancing innovation with risk management through appropriate public policies and regulation.
- Concluding rhetorical note: “Who knows what new possibilities such innovations will unlock along the way?”

*5SEPTEMBER 2025 — Editor’s Letter, F&D. Gita Bhatt, editor-in-chief.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2025/09/editors-letter.pdf_