Making The Digital Money Revolution Work for All

IMF Blog, July 29, 2021

Source details

Authors: Tobias Adrian, Tommaso Mancini-Griffoli
Publication date: July 29, 2021
Central thesis: Digital money innovations can transform payments, inclusion, efficiency, and cross-border flows, but immediate policy action is required to manage tradeoffs and risks and to ensure benefits are widely shared.

Digital forms of money include:
- Central bank digital currencies (CBDC) — publicly issued digital cash (not necessarily offering the same anonymity to avoid illicit transfers).
- eMoney (example: Kenya’s mobile money transfer service MPesa).
- Stablecoins (digital tokens backed by external assets, examples: USD-coin and the proposed Diem).
- Cryptoassets (example: Bitcoin) — described as unbacked and highly volatile.
Adoption and market movements:
- CBDCs are being closely analyzed, piloted, or likely to be issued in at least 110 countries.
- Stablecoins tripled in value in the last six months (from $25 billion to $75 billion).
- Cryptoassets doubled (from $740 billion to $1.4 trillion).
- eMoney accounts are growing much more rapidly in low- and middle-income countries than in rich ones; Africa is highlighted as a leader.

Increased payment efficiency and lower costs for transfers, including cross-border payments.
Financial inclusion: people without bank accounts can save securely and build transaction histories to access micro-loans.
New use cases: programmable money to serve specific purposes; integration with financial and social media applications.
Government efficiencies: more transparent and efficient taxation and redistribution; streamlined welfare disbursements.
Business efficiencies: faster settlement for asset purchases; cheaper and instant payments for artisans and firms.

International monetary system:
- Design and regulation of digital money must preserve governments’ ability to stabilize prices (control monetary policy) and stabilize exchange rates (control capital flows).
- Payment systems should grow increasingly integrated among countries and avoid fragmentation into regional blocs.
- Avoiding a digital divide is essential so benefits are not concentrated and others left behind.
- Stability and availability of cross-border payments are important for international trade and investment.
Domestic economic and financial stability:
- Public and private sectors should collaborate to provide money to end-users while ensuring stability and security without stifling innovation.
- Banks may face pressure as specialized payment companies compete for customers and deposits; credit provision must be sustained during transitions.
- Fair competition must be upheld amid large technology companies entering payments.
- Digital money can be leveraged to facilitate welfare transfers and tax payments and to lower costs of access to payment and savings services.
Trust, safety, and integrity:
- New forms of money must protect consumers’ wealth, be safe, be anchored in sound legal frameworks, and avoid facilitating illicit transactions.

Policy action must begin immediately to establish a common vision for the international monetary system, strengthen international collaboration, and enact legal and regulatory frameworks that drive inclusive innovation.
Regulation, market structure, product features, and the role of the public sector can quickly ossify around less desirable outcomes; reversing course later can be very costly.

Mandate: help ensure widespread adoption of digital money fosters domestic economic and financial stability and the stability of the international monetary system.
Planned IMF actions:
- Engage regularly with country authorities to evaluate country-specific policies.
- Provide capacity development to avoid a digital divide.
- Develop analytical foundations to identify policy options and tradeoffs.
- Deepen expertise, widen skillsets, ramp up resources, and leverage near universal membership.
Collaboration: work closely with the World Bank, the Bank for International Settlements and its Innovation Hub, international working groups and standard-setting bodies, and national authorities to address complex, multifaceted challenges.

CBDCs: being analyzed, piloted, or likely to be issued in at least 110 countries.
Stablecoins: grew from $25 billion to $75 billion (tripled) in six months.
Cryptoassets: grew from $740 billion to $1.4 trillion (doubled).
Geographic trend: eMoney accounts are growing faster and are now more numerous in low- and middle-income countries than in rich countries; Africa is leading in adoption.

Making The Digital Money Revolution Work for All — Tobias Adrian, Tommaso Mancini-Griffoli, July 29, 2021