Download or read book Capital Flow Management Measures in the Digital Age written by Mr. Dong He and published by International Monetary Fund. This book was released on 2022-05-10 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Capital flow management measures (CFMs) can be part of the broader policy toolkit to help countries reap the benefits of capital flows while managing the associated risks. Their implementation typically requires that financial intermediaries verify the nature of transactions and the identities of transacting parties but is facing the rising challenge of crypto assets. Indeed, crypto assets have become a significant instrument for payments and speculative investments in some countries. They can be traded pseudonymously and held without identification of the residency of the asset holder. Many crypto service providers operate across borders, making supervision and enforcement by national authorities more difficult. The challenges posed by the attributes of crypto assets are compounded by gaps in the legal and regulatory frameworks. This paper aims to discuss how crypto assets could impact the effectiveness of CFMs from a structural and longer-term perspective. To preserve the effectiveness of CFMs against crypto-related challenges, policymakers need to consider a multifaceted strategy whose essential elements include clarifying the legal status of crypto assets and ensuring that CFM laws and regulations cover them; devising a comprehensive, consistent, and coordinated regulatory approach to crypto assets and applying it effectively to CFMs; establishing international collaborative arrangements for supervision of crypto assets; addressing data gaps and leveraging technology (regtech and suptech) to create anomaly-detection models and red-flag indicators that will allow for timely risk monitoring and CFM implementation.

Download or read book Capital Flow Management Measures in the Digital Age 2 written by Mr. Dong He and published by International Monetary Fund. This book was released on 2023-09-15 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: This fintech note looks at how capital flow measures (CFMs) could be implemented with central bank digital currency (CBDC), and what benefits, risks and complexities could arise. There are several implications of the analysis. First, CBDC ecosystems should generally be designed such that they can accommodate the introduction of CFMs. Second, thanks to the programmability of the payment infrastructure given by the new digital technologies, certain CFMs could likely be implemented more efficiently and effectively with CBDC compared to the traditional system. Third, implementing CFMs requires central banks to collaborate on practices and standards. Finally, CFMs on CBDC need to operate alongside traditional CFMs.

Download or read book Capital Flow Management Measures written by Kristin Forbes and published by . This book was released on 2015 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: Are capital controls and macroprudential measures related to international exposures successful in achieving their objectives? Assessing their effectiveness is complicated by selection bias; countries which change their capital-flow management measures (CFMs) often share specific characteristics and are responding to changes in variables that the CFMs are intended to influence. This paper addresses these challenges by using a propensity-score matching methodology. We also create a new database with detailed information on weekly changes in controls on capital inflows, capital outflows, and macroprudential measures related to international transactions from 2009 to 2011 for 60 countries. Results show that these macroprudential measures can significantly reduce some measures of financial fragility. Most CFMs do not significantly affect other key targets, however, such as exchange rates, capital flows, interest-rate differentials, inflation, equity indices, and different volatilities. One exception is that removing controls on capital outflows may reduce real exchange rate appreciation. Therefore, certain CFMs can be effective in accomplishing specific goals-but most popular measures are not "good for" accomplishing their stated aims.

Download or read book The Rise of Public and Private Digital Money written by International Monetary Fund and published by International Monetary Fund. This book was released on 2021-07-29 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Following the companion paper on the new policy challenges related to the adoption of digital forms of money, this paper presents an operational strategy for the IMF to continue delivering on its mandate of ensuring domestic and international financial and economic stability. The paper begins by summarizing the forces driving the adoption of digital forms of money, and the new policy questions that emerge. It then focusses on how the IMF’s core activities and output will need to evolve, including surveillance, capacity development, and analytical foundations. It ends by discusses how the IMF intends to partner with other organization, and to grow and structure internal resources to fulfill this vision.

Download or read book Crypto Assets and CBDCs in Latin America and the Caribbean Opportunities and Risks written by Maximiliano Appendino and published by International Monetary Fund. This book was released on 2023-02-17 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: After providing a general overview of the nature, pros, and cons of crypto assets and CBDCs, this paper focuses on documenting their recent experience in LAC. The region records a high interest in unbacked crypto assets and stablecoins and its authorities’ policy responses have varied substantially, ranging from the introduction of Bitcoin as legal tender in El Salvador to their prohibition in many other countries worried about their impact on financial stability, currency/asset substitution, tax evasion, corruption, and money laundering. This paper also describes briefly the results of a survey on CBDCs’ introduction plans and crypto assets regulation. Finally, this paper presents some general lessons and policy recommendations for the region on the regulation of cypto assets, digital currencies and cross-border payments, and on the potential introduction of CBDCs.

Download or read book Central Bank Digital Currencies in the Middle East and Central Asia written by Serpil Bouza and published by International Monetary Fund. This book was released on 2024-04-26 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: Against the backdrop of a rapidly digitalizing world, there is a growing interest in central bank digital currencies (CBDCs) among central banks, including in the Middle East and Central Asia (ME&CA) region. This paper aims to support ME&CA policymakers in examining key questions when considering the adoption of a CBDC while underscoring the importance of country-specific analyses. This paper does not provide recommendations on CBDC issuance. Instead, it frames the discussion around the following key questions: What is a CBDC? What objectives do policymakers aim to achieve with the issuance of a CBDC? Which inefficiencies in payment systems can CBDCs address? What are the implications of CBDC issuance for financial stability and central bank operational risk? How can CBDC design help achieve policy objectives and mitigate these risks? The paper provides preliminary answers to these questions at the regional level. A survey of IMF teams and public statements from ME&CA policymakers confirm that promoting financial inclusion and making payment systems more efficient (domestic and cross-border) are the top priorities in the region. Payment services through CBDCs, if offered at a lower cost than existing alternatives, could spur competition in the payment market and help increase access to bank accounts, improve financial inclusion, and update legacy technology platforms. CBDCs may also help improve the efficiency of cross-border payment services, especially if designed to address frictions arising from a lack of payment system interoperability, complex processing of compliance checks, long transaction chains, and weak competition. At the same time, CBDCs could negatively impact bank profitability while introducing a substantial operational burden for central banks. However, the exact economic and financial impacts of CBDCs need further study and would depend on estimates of CBDC demand, which are uncertain and country- dependent. CBDC issuance and adoption is a long journey that policymakers should approach with care. Policymakers need to analyze carefully whether a CBDC serves their country’s objectives and whether the expected benefits outweigh the potential costs, in addition to risks for the financial system and operational risks for the central bank.

Download or read book Cross Border Payments with Retail Central Bank Digital Currencies written by Andre Reslow and published by International Monetary Fund. This book was released on 2024-05-15 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many central banks are currently exploring the possibility of issuing retail central bank digital currency (CBDC). While the primary objective varies between jurisdictions, many central banks consider improved cross-border payments as a potential benefit and previous work has shown that CBDC can help overcome some of the frictions in cross-border payments. CBDC is a safe and liquid asset reducing the number of financial intermediaries and the settlement risk. Designing CBDC systems for cross-border payments is not fundamentally different from tailoring other payment systems. However, the roles and responsibilities might be slightly different in a CBDC system, and the central bank may play a more pivotal role given CBDC’s nature as public money as opposed to commercial bank money. This note draws lessons from ongoing experimentation and research to identify design and policy considerations when developing retail CBDC systems so it may be compatible for cross-border payments. The note focuses on retail CBDC—a CBDC primarily targeting households and non-financial firms—and leaves wholesale CBDC considerations for future work, although many of the discussions are applicable to wholesale CBDC and other forms of money as well.

Download or read book Crypto as a Marketplace for Capital Flight written by Clemens M. Graf von Luckner and published by International Monetary Fund. This book was released on 2024-06-28 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper shows how cryptocurrency markets can fuel cross-border capital flight by serving as marketplaces that match counterparts with and without (illicit) access to FX. In countries where international transactions are restricted, crypto exchanges effectively allow domestic agents to pay a premium to buy foreign currency. The counterparts to these transactions are agents with access to FX, who sell crypto holdings purchased abroad. A stylized model illustrates that restricted foreign currency amid economic imbalances incentivizes these transactions via persistent crypto premia in local relative to global markets. We analyze relative crypto pricing data in several country case studies, providing empirical support that crypto markets serve as marketplaces for capital flight that already took place, rather than a novel channel for capital flight. We make available a novel dataset on crypto market premia, which we propose as indicators of excess demand for foreign currency and capital control intensity. The dataset will be posted along with this paper and updated periodically.

Download or read book Regulating the Crypto Ecosystem written by Parma Bains and published by International Monetary Fund. This book was released on 2022-09-26 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: Stablecoins have experienced periods of rapid growth, accelerated links with traditional finance. Without proper regulation, contagion risks to wider financial sector will increase. Global regulation for stablecoins should be comprehensive, consistent, risk-based, flexible, and focus on their structural features and use. Requirements on stablecoins should cover the entire ecosystem and all its key functions, and there should be additional oversight for systemic stablecoin arrangements. In markets where risks are growing quickly, authorities should take immediate action by using all the tools at their disposal. This note provides key elements that should feature in any regulatory arrangement. For effective implementation, domestic and international collaboration are key.

Download or read book Rise of Digital Money written by Yong Sarah Zhou and published by International Monetary Fund. This book was released on 2024-02-25 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: The departmental paper, "Rise of Digital Money: Implications for Pacific Island Countries," delves into the fast-evolving landscape of digital money in a diverse region of extremes in size, remoteness and dispersion, highlighting its significant macroeconomic and financial consequences. It provides an overview of the development of digital money and payment systems in Pacific Island Countries (PICs), assessing potential benefits and risks, with a focus on how they can harness digital technology to enhance financial inclusion and payment efficiency while minimizing risks. To this end, the paper also examines the prerequisites for successfully adopting various forms of digital money and proposes a strategic framework for policy decisions. The paper underscores the potential of digital money in advancing public policy goals, like financial inclusion and improved cross-border connectivity – given the specific characteristics of the region – while cautioning against the risks of rapid and inadequately regulated adoption. Accordingly, it advocates a gradual, well-informed approach, tailored to PICs' unique monetary and financial circumstances, including the presence of national currencies and the maturity of payment systems. Moreover, the paper suggests that a regional approach could help address capacity and scalability challenges in introducing new digital money forms and payment methods in PICs.

Download or read book Macro Financial Implications of Foreign Crypto Assets for Small Developing Economies written by Alexander Copestake and published by International Monetary Fund. This book was released on 2023-12-06 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Macro Financial Impacts of Foreign Digital Money written by Anh Le and published by International Monetary Fund. This book was released on 2023-12-06 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a two-country New Keynesian model with endogenous currency substitution and financial frictions to examine the impact on a small developing economy of a stablecoin issued in a large foreign economy. The stablecoin provides households in the domestic economy with liquidity services and an additional hedge against domestic inflation. Its introduction amplifies currency substitution, reducing bank intermediation and weakening monetary policy transmission, worsening the impacts of recessionary shocks and increasing banking sector stress. Capital controls raise stablecoin adoption as a means of circumvention, increasing exposure to spillovers from foreign shocks. Unlike a domestic CBDC, a ban on stablecoin payments can alleviate these effects.

Download or read book Exploring Central Bank Digital Currencies Concepts Frameworks Models and Challenges written by Kaur, Guneet and published by IGI Global. This book was released on 2024-03-07 with total page 380 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the ever-evolving landscape of global finance, the rise of Central Bank Digital Currencies (CBDCs) has introduced a myriad of challenges that demand immediate scholarly attention. The accelerating pace of digital transformation, coupled with the intricate dynamics of these novel currencies, poses significant hurdles in their widespread adoption. From privacy concerns to the technological complexities involved, the academic community finds itself at the forefront of deciphering the multifaceted challenges inherent in the CBDC landscape. Addressing this imperative need for comprehensive analysis is the groundbreaking publication, Exploring Central Bank Digital Currencies: Concepts, Frameworks, Models, and Challenges. Within the pages of this compelling work, scholars will encounter a meticulous exploration of the intricate evolution of money, navigating from traditional barter systems to the digital era. The catalytic role of Bitcoin in reshaping the financial landscape serves as a cornerstone, laying the foundation for a profound understanding of the cryptocurrency fundamentals that underpin CBDCs. This book delves into the conceptual frameworks and technological models shaping CBDCs, aiming to illuminate the complex challenges faced by central banks, governments, and financial institutions in their pursuit of digital currency integration.

Download or read book Implications of Central Bank Digital Currencies for Monetary Policy Transmission written by Ms. Mitali Das and published by International Monetary Fund. This book was released on 2023-09-15 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This fintech note presents an analysis of the implications of central bank digital currency (CBDC) for monetary policy. In our framework, the implications of CBDC issuance on monetary policy are intermediated by its impact on key parts of the macroeconomic environment. The note also makes a distinction between “level effects”—whereby the introduction of CBDCs could tighten or loosen financial conditions as a shock—and “transmission effects,” whereby CBDCs change the impact of a given monetary policy shock on output, employment, and inflation. In general, the effects of CBDCs on monetary policy transmission are expected to be relatively small in normal times; however, these effects can be more significant in an environment with low interest rates or financial market stress.

Download or read book Digital Money Cross Border Payments International Reserves and the Global Financial Safety Net written by Mr. Seunghwan Kim and published by International Monetary Fund. This book was released on 2024-01-04 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: The rapid advent of digital money (DM) and assets raises questions about its implications for the functioning of the international monetary system (IMS). The low transaction costs of digital technologies, their accessibility and ease of automation, and their integration into existing digital services may bring opportunities in the form of higher financial interconnectedness and inclusion but may also add to risks. This paper explores the possible implications of DM for the IMS from the perspective of cross-border payments, international reserves and the supply of global safe assets, and the global financial safety net. To help inform the discussion, the paper presents empirical analyses of the effect of payment efficiency on international currency adoption for payment/transaction purposes as well as on reserve currency holdings, along with an illustrative modeling scenario of a DM-induced shock for the potential demand for global financial safety net resources.

Download or read book Republic of T rkiye written by International Monetary Fund. European Dept. and published by International Monetary Fund. This book was released on 2023-01-18 with total page 88 pages. Available in PDF, EPUB and Kindle. Book excerpt: Türkiye’s recovery from the pandemic has been remarkable and reflects outsized stimulative policies and a dynamic private sector. But the same policies that buoyed growth also exacerbated vulnerabilities by lowering reserve buffers and increasing dollarization. A new policy model, introduced in the Fall of 2021, aims at further supporting growth and at lowering inflation by eliminating Türkiye’s current account deficit. The model relies on low interest rates and on measures to reduce dollarization, financial volatility, and overall credit growth, while directing lending to selected sectors. Successive policy rate cuts led to a run on the lira in December 2021, which was only relieved by large FX intervention and a new FX-protected deposit scheme. Since then, increasingly distortionary and complex macrofinancial and regulatory measures have been put in place to limit the lira decline. Meanwhile, inflation reached multi-decade highs, at 85 percent in October 2022. While Türkiye’s public debt burden is low compared to peers, fiscal risks have grown—notably from quasi-fiscal operations, contingent liabilities, and the exposure of public debt to FX shocks—and spending is expected to rise ahead of the upcoming elections. Spillovers from Russia’s war in Ukraine have added to Türkiye’s economic strains and have exacerbated external vulnerabilities, notably through a wider current account deficit.

Download or read book Programmability in Payment and Settlement written by Xavier Lavayssière and published by International Monetary Fund. This book was released on 2024-08-16 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Programmability in payment and settlement has yet to realize its potential to support policy goals such as efficiency, safety, and innovation. This paper proposes a comprehensive framework for understanding and evaluating programmability. It explores two key dimensions: external programmatic access, which is the ability for external participants to access the system data and functions with code, and internal programmatic capabilities, the extent to which internal execution of programs is supported and guaranteed. By developing strategies based on these dimensions, financial institutions, regulators, and related actors can better improve resilience, reduce costs and interoperability, all while managing associated risks. The resulting hybrid systems are coordinated efforts balancing the advantages of permissionless blockchains, such as composability, with regulatory requirements and a wider range of technologies. The paper describes these programmatic models to inform and guide the development of digital finance, bridging policy discussions with technical considerations.