E-Money and Monetary Policy Transmission

IMF Working Papers, March 29, 2024

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E-money development has important yet theoretically ambiguous consequences for monetary policy transmission because nonbank deposit-taking e-money issuers (EMIs) (e.g., mobile network operators) can either complement or substitute banks.
Case studies of e-money regulations point to complementarity of EMIs with banks, implying that the development of e-money could deepen financial intermediation and strengthen monetary policy transmission.
The paper highlights the potential benefits of e-money development in strengthening monetary policy transmission, especially in countries with limited financial inclusion.

Panel data analysis over 2001 to 2019.
Monthly panel: covering 21 countries.
Annual panel: covering 47 countries.
Estimation approach: two-way fixed effect estimator to estimate the causal effects of e-money development on monetary policy transmission.

E-money development has accompanied stronger monetary policy transmission, measured by the responsiveness of interest rates to the policy rate.
E-money development has accompanied growth in bank deposits and credit.
E-money development has accompanied efficiency gains in financial intermediation, measured by the lending-to-deposit rate spread.
Evidence is more pronounced in countries where e-money development takes off in a context of limited financial inclusion.

Subject: Bank credit, Central bank policy rate, Deposit rates, Financial inclusion, Financial markets, Financial services, Money
Keywords: Africa, Bank credit, banks, Central bank policy rate, Deposit rates, e-money, e-money development, e-money intensity, E-Money intensity, e-money issuer, Financial inclusion, Monetary policy transmission, nonbank financial institutions, panel data, Sub-Saharan Africa