Fintech Notes

Macro-Financial Implications of Foreign Crypto Assets for Small Developing Economies

By Alexander Copestake, Anh Le, Evan Papageorgiou, Brandon Tan

December 6, 2023

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Format: Chicago

Alexander Copestake, Anh Le, Evan Papageorgiou, and Brandon Tan. Macro-Financial Implications of Foreign Crypto Assets for Small Developing Economies, (USA: International Monetary Fund, 2023) accessed November 8, 2024

Summary

To explore risks associated with digital money, this Fintech Note simulates the hypothetical large-scale adoption of crypto assets in a model of a small open economy. The model highlights that a foreign-currency denominated stablecoin can amplify currency substitution and capital outflows in response to negative shocks. Monetary policy transmission is also weakened, forcing the central bank to adjust interest rates more aggressively in response to shocks. Capital flow management measures—if they do not constrain crypto flows—further incentivize households to hold foreign stablecoins for circumvention purposes, exacerbating the negative effects of crypto adoption on the macroeconomy. This underscores that widespread crypto adoption can weaken policymakers’ available options for mitigating external shocks and potentially increase cross-country spillovers.

Subject: Central Bank digital currencies, Currencies, Dollarization, Economic sectors, Financial crises, Monetary policy, Money, Technology

Keywords: Capital flow management measure circumvention, CBDC, Central Bank digital currencies, Crypto asset adoption, Crypto assets, Cryptoization, Currencies, Digital money, Dollarization, Global, IMF Fintech Note 2023/012, Macrofinancial implication, Macro-financial risk, Monetary policy shock, Stablecoins, Store of value

Publication Details

  • Pages:

    26

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Fintech Notes No 2023/012

  • Stock No:

    FTNEA2023012

  • ISBN:

    9798400258367

  • ISSN:

    2664-5912

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