What Does Digital Money Mean for Emerging Market and Developing Economies?
Physical cash and commercial bank money are dominant vehicles for retail payments around the world, including in emerging market and developing economies (EMDEs). Yet payments in EMDEs are marked by several key deficiencies, such as lack of univers...
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| Language: | English |
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World Bank, Washington, DC
2022
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| Online Access: | http://documents.worldbank.org/curated/en/099736004212241389/P17300602cf6160aa094db0c3b4f5b072fc http://hdl.handle.net/10986/37358 |
| Summary: | Physical cash and commercial bank
money are dominant vehicles for retail payments around the
world, including in emerging market and developing economies
(EMDEs). Yet payments in EMDEs are marked by several key
deficiencies, such as lack of universal access to
transaction accounts, widespread informality, limited
competition, and high costs, particularly for cross-border
payments. Digital money seeks to address these deficiencies.
This note categorizes new digital money proposals. These
include crypto-assets, stable coins, and central bank
digital currencies (CBDCs). It assesses the supply and
demand factors that may determine in which countries these
innovations are more likely to be adopted. It lays out
particular policy challenges for authorities in EMDEs.
Finally, it compares these with digital innovations such as
mobile money, retail fast-payment systems, new products by
incumbent financial institutions, and new entrants such as
specialized cross-border money-transfer operators. Proposals
for global stablecoins have put a much-needed spotlight on
deficiencies in financial inclusion, and in cross-border
payments and remittances in EMDEs. Yet stablecoin
initiatives are no panacea. While they may achieve adoption
in certain EMDEs, they may also pose development,
macroeconomic, and cross-border challenges for these
countries and have not been tested at scale. Several EMDE
authorities are weighing the potential costs and benefits of
CBDCs. We argue that the distinction between token-based and
account-based money matters less than the distinction
between central bank and non-central bank money. Fast-moving
fintech innovations that are built on, or improve existing
financial plumbing, may address many of the issues in EMDEs
that both private stablecoins and CBDCs aim to tackle. |
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