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on Financial Development and Growth |
| By: | Morshed, Monzur |
| Abstract: | This paper highlights the significance of financial systems for long-term economic growth, based on a review of structural and natural experiments and econometric evidence. Over time, from the deregulation of banking in the USA to microfinance in South Asia to mobile banking in both sub-Saharan Africa and South Asia, finance has consistently proven to be the cornerstone for financing, innovation, and resource allocation. These policy recommendations emphasize providing increased access to capital through the promotion of inclusive and transparent financial systems, thereby fostering a higher degree of entrepreneurship and gradual advancement of global economic integration. |
| Date: | 2025–03–26 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:qgnzm_v1 |
| By: | Süße, Marvin; Grigoriadis, Theocharis |
| Abstract: | Gerschenkron (1962) argued that public institutions such as the State Bank of the Russian Empire spurred the country's industrialization. We test this assertion by exploiting plant-level variation in access to State Bank branches using a unique geocoded factory data set. Employing an identification strategy based on geographical distances between banks and factories, our results show improved access to public banking encouraged faster growth in factory-level revenue, mechanization, and labor productivity. In line with theories of late industrialization, we also find evidence that public credit mattered more in regions where commercial banks were fewer and markets were smaller. |
| Keywords: | industrialization, economic geography, banking, industrial policy |
| JEL: | G28 L52 N23 O14 P41 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:fubsbe:315202 |
| By: | Colin Davis; Ken-ichi Hashimoto |
| Abstract: | This paper investigates how the cash-in-advance (CIA) constraints that firms face in production and innovation decisions affect the long-run relationship between monetary policy and innovation-based economic growth. Firms produce differentiated product varieties and invest in process innovation to reduce production costs. With imperfect knowledge diffusion across countries, the country with the greater share of industry has relatively productive firms. We find that when innovation has a stricter CIA requirement than production, an increase in the nominal interest rate in the country with the larger (smaller) share of industry reduces the industrial share of that country, thereby decreasing (increasing) the rate of productivity growth. We also examine the implications of improvements in knowledge diffusion for the optimal nominal interest rate policy of each country. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1278 |
| By: | Ufuk Akcigit; Sina T. Ates; Joshua Lerner; Richard Townsend; Yulia Zhestkova Grigsby |
| Abstract: | Over the past decade, a salient feature of the U.S. entrepreneurship has been the growing extent of foreign venture investments in Silicon Valley, particularly from Chinese corporations, individuals, and financial institutions. |
| Date: | 2024–12–31 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2024-12-31 |
| By: | Tetsuji Okazaki (The Faculty of Economics, Meiji Gakuin University, The Cann Institte for Global Studies (CIGS), and The University of Tokyo); Toshihiro Okubo (Faculty of Economics, Keio University); Eric Strobl (Faculty of Business, Economics and Social Sciences, University of Bern) |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:tky:fseres:2025cf1246 |
| By: | Mathias Hoffmann; Tetsuji Okazaki; Toshihiro Okubo |
| Abstract: | In Japan in the 1920s, several financial crises and government policy led to bank mergers and the consolidation and expansion of branch networks. Using unique historical bank branch-level lending and deposit data, we show that branch banking integrated peripheral markets with the rest of the country, with large urban banks — those headquartered in Tokyo and Osaka — using deposit supply shocks in peripheral areas to fund lending elsewhere. While these findings support contemporary concerns about branch banking draining funds from peripheral markets, we argue that the export of liquidity by urban banks likely represented an efficient reallocation of credit, driven primarily by competition in funding markets. Faced with high-yielding lending opportunities in central prefectures, urban banks bid up deposit rates in peripheral areas, raising local banks’ funding costs. Local banks responded by lowering intermediation margins and reducing lending to traditional industries, which suggests that they shifted their lending to less risky and more efficient customers. We speculate that this competitive reallocation of capital across regions and sectors allowed banks to maintain a functional specialization in different customer segments, which may explain the continued coexistence of small relationship lenders and large integrated arms-length lenders in local banking markets. |
| Keywords: | bank, branch banking, regional ï¬ nance, bank merger, economic history, Japan, internal capital markets, relationship lending, financial integration |
| JEL: | F36 G2 N2 N9 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2025-16 |
| By: | Oscar Monterroso; Diego Vilán |
| Abstract: | Workers' remittances, the earnings sent home by migrant workers abroad, play a crucial role in supporting the economies of developing countries. Remittances enable lower-income households in developing nations to secure access to essential needs such as food, housing, education and healthcare services. |
| Date: | 2025–02–27 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2025-02-27 |
| By: | Bambe, Bao-We-Wal |
| Abstract: | This paper examines the effect of macroprudential policies on private domestic investment using a panel of 87 developing countries from 2000 to 2017. Our instrumental variables strategy exploits the geographic diffusion of macroprudential policies across countries, with the idea that reforms in neighbouring countries can affect the adoption or strengthening of domestic reforms through peer pressure or imitation effects. The findings indicate that the tightening of macro-prudential policies significantly reduces private domestic investment. This effect holds for both instruments targeting borrowers and those targeting financial institutions, and is subject to heterogeneity depending on several economic and institutional factors. The transmission channel analysis highlights that the negative impact of macroprudential policies on investment is primarily driven by a reduction in credit supply and financial inclusion. |
| Keywords: | Macroprudential policies, private domestic investment, developing countries, instrumental variables |
| JEL: | E22 E44 G28 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:diedps:313611 |
| By: | Martin Ertl (Institute for Advanced Studies, Vienna); Katrin Rabitsch (Department of Economics, Vienna University of Economics and Business) |
| Abstract: | We explore the natural rate of interest, shortly r*, in emerging economies. If economic growth originates from convergence, then growth, say, from technological progress will be lower than we find in the data and, hence, r* will be lower. Ignoring convergence upwardly biases our estimates of r*. We extend the New Keynesian small open economy model to incorporate convergence effects and estimate it using Bayesian techniques for four emerging economies in Central and Eastern Europe: Poland, Czech Republic, Hungary and Romania. Empirical evidence of the rapid catching-up of our sample economies during the period from 2003 to 2019 assists in specifying the model estimation. Our findings confirm a decline in r* over the past decades. Accounting for capital deepening reveals meaningful differences in estimated r*, with non-negligible implications for monetary policy in emerging economies. |
| Keywords: | natural rate of interest, convergence, New Keynesian DSGE model, Central and Eastern Europe |
| JEL: | E3 E4 E5 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp376 |
| By: | Sophia Cho; John C. Williams |
| Abstract: | Estimates of the natural rate of interest, commonly called “r-star, ” garner a great deal of attention among economists, central bankers, and financial market participants. The natural interest rate is the real (inflation-adjusted) interest rate expected to prevail when supply and demand in the economy are in balance and inflation is stable. The natural rate cannot be measured directly but must be inferred from other data. When assessing estimates of r-star, it is important to distinguish between real-time estimates and retrospective estimates. Real-time estimates answer the question: “What is the value of r-star based on the information available at the time?” Meanwhile, retrospective estimates answer the question: “What was r-star at some point in the past, based on the information available today?” Although the latter question may be of historical interest, the former question is typically more relevant in practice, whether in financial markets or central banks. Thus, given their different nature, comparing real-time and retrospective estimates is like comparing apples to oranges. In this Liberty Street Economics post, we address this issue by creating new “synthetic real-time” estimates of r-star in the U.S. for the Laubach-Williams (2003) and Holston-Laubach-Williams (2017) models, using vintage datasets. These estimates enable apples-to-apples comparisons of the behavior of real-time r-star estimates over the past quarter century. |
| Keywords: | natural rate of interest; real time estimation; Laubach-Williams model; Holston-Laubach-Williams model; R-Star |
| JEL: | C32 E43 |
| Date: | 2025–03–03 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:99638 |
| By: | Hanif, Muhammad; Farooqi, M Nauman |
| Abstract: | Purpose — The study documents the performance of the Islamic banking services industry (IBSI) in light of the Islamic finance objectives, notably financial stability, equitable distribution of wealth, and social responsibility. Design/Methodology/Approach — After drawing the performance evaluation framework based on the objectives, the research conducts a balance sheet analysis of the IBSI in Pakistan for 32 quarters (2013Q4–2021Q3). The analysis examines sources and uses of funds by looking at the application of financial contracts and sectoral distribution of financing. Objectively classified data trends are reported through graphs. Findings — Findings suggest that the domestic IBSI has shown progress in achieving primary and intermediate objectives, including commercial performance, contribution to equitable wealth distribution, and financial stability. However, the industry’s in-practice business models lack any significant contribution to the social sector, which represents a more advanced objective. Originality/Value — The contributions to the literature include development of a performance evaluation framework based on Islamic finance objectives, and documentation of findings on the IBSI’s achievements in Pakistan. Research Implications — The study recommends that regulators develop a legal framework for business models of the IBSI. It also recommends that managers of domestic Islamic banks include the social sector as well as agricultural and rural areas in financing and investment portfolios. |
| Date: | 2023–04–03 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:e3pxd_v1 |
| By: | Emilija Jankovic, Stojan Jankovic and Andrea Jovic; Emilija Jankovic (National Bank of Serbia); Stojan Jankovic (National Bank of Serbia); Andrea Jovic (National Bank of Serbia) |
| Abstract: | Following S&P’s decision in October 2024 to raise Serbia’s credit rating to investment grade (BBB–) for the first time in its history, the question arises regarding the manner in which changes in the credit rating level and outlook may impact key macroeconomic indicators. For this purpose, we conducted research analysing the short- and long-run impact of change in the rating awarded by the three leading international agencies (S&P, Fitch and Moody’s) on FDI inflow and economic activity in Serbia (approximated by the industrial production index). For the econometric analysis, we used linear and non-linear autoregressive distributed lag models ((N)ARDL) confirming the initial thesis that an improvement in the credit rating can have a significant impact on higher FDI inflow and industrial production growth in Serbia in both short and long run. This supports a more favourable investment and business environment, and a better living standard for citizens, contributing to sustainable economic growth over the long term. |
| Keywords: | credit rating, investment grade, FDI, industrial production, ARDL |
| JEL: | F21 G15 G24 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:nsb:bilten:30 |
| By: | Oscar Botero-Ramírez; Andrés Murcia; Mauricio Villamizar-Villegas |
| Abstract: | We examine the impact of foreign investor heterogeneity on local lending, focusing on Colombia from 2014 to 2023. Distinguishing between benchmark-driven and unconstrained investors, we highlight their differing responses to global and idiosyncratic shocks. Using bond-level data and the corporate credit registry, we link banks’ exposure to foreign flows with firm-level lending decisions. By decomposing Colombia’s weight in the J.P. Morgan GBI-EM index into valuation and exogenous components, we identify how investor behavior shapes bank balance sheets. Our main findings show that banks with greater exposure to unconstrained investors significantly expand lending during capital inflows, whereas those linked to benchmark-driven investors exhibit a more muted response. These results emphasize the role of investor composition in financial stability and provide key insights for policymakers in emerging markets. **** RESUMEN: Examinamos el impacto de los diferentes tipos de inversionistas extranjeros en el crédito local, centándonos en Colombia entre 2014 y 2023. Diferenciamos entre inversionistas guiados por índices de referencia e inversionistas no restringidos, destacando sus respuestas divergentes ante choques globales e idiosincrásicos. Utilizando datos a nivel de bonos y el registro de crédito comercial, relacionamos la exposición de los bancos a flujos extranjeros con las decisiones de préstamo a nivel de empresa. Al descomponer el peso de Colombia en el índice J.P. Morgan GBI-EM en componentes de valoración y exógenos, identificamos cómo el comportamiento de los inversionistas influye en los balances bancarios. Nuestros principales hallazgos muestran que los bancos con mayor exposición a inversionistas no restringidos expanden significativamente el crédito durante las entradas de capital, mientras que aquellos vinculados a inversionistas guiados por índices presentan una respuesta más moderada. |
| Keywords: | Capital flows, foreign investment, investor classification, J.P. Morgan GBI-EM index, emerging markets, Flujos de capital, inversión extranjera, clasificación de inversionistas, índice J.P. Morgan GBI-EM, mercados emergentes |
| JEL: | F3 F4 G01 G11 G12 G15 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:bdr:borrec:1309 |
| By: | Happ, Christian; Schauer, Frederik; Schiereck, Dirk |
| Abstract: | Im Zuge der europäischen Schuldenkrise stellt sich die Frage, ob sich das Banken- und Finanzsystem der USA durch Ansteckungseffekte ebenso in Gefahr befindet. Vor dem Hintergrund zahlreicher Downgradings europäischer Staaten in den vergangenen Jahren werden im vorliegenden Beitrag Werteffekte von Rating-Meldungen auf US-Banken untersucht. Es zeigt sich, dass negative Meldungen signifikant abnormale Kursreaktionen hervorrufen, wovon besonders US-Großbanken mit hohem Risiko-Exposure gegenüber europäischen Krisenstaaten betroffen sind. Positive Meldungen ziehen dagegen keinerlei Effekte nach sich. Die Resultate belegen, dass die Konsequenzen der Schuldenkrise sich nicht allein auf Europa beschränken, sondern dass Hilfspakete für europäische Staaten auch die Finanzsysteme in Ländern anderer Kontinente stützen können. |
| Date: | 2025–03–18 |
| URL: | https://d.repec.org/n?u=RePEc:dar:wpaper:153635 |
| By: | Pia Hüttl; Frederik Kurcz |
| Abstract: | Die Finalisierung der Banken- und Kapitalmarktunion steht schon lange auf der Agenda diverser Bundesregierungen. Sie wurde aber immer wieder verzögert. Der überraschende Vorstoß der italienischen Bank Unicredit, die deutsche Commerzbank zu übernehmen, machte Ende letzten Jahres deutlich, wie wichtig es ist, die Bankenunion voranzutreiben. Eine solche Bankenunion würde nicht nur dazu beitragen, ein widerstandsfähigeres Finanzsystem zu schaffen, um für die nächste Krise gewappnet zu sein. Durch mehr Wettbewerb der europäischen Banken würde sie auch die Finanzierungskosten für Unternehmen reduzieren. Berechnungen zeigen, dass jede Zinssenkung um zehn Basispunkte die Investitionen in Deutschland um fünf Prozent steigern würde. Die neue Bundesregierung könnte also mit einem Ende ihrer Blockadehaltung zur Bankenunion auch die heimische Wirtschaft ankurbeln. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:diw:diwakt:113de |
| By: | Chimwemwe Chipeta; Lerato Mapela |
| Abstract: | We examine the effects of the implementation of the Basel III accord on the growth of non-bank financial institutions and fintech platforms in South Africa. Using a difference-in-difference estimation procedure, we find evidence of regulatory arbitrage, suggesting that the imposition of minimum capital requirements results in the growth of deposit-taking non-bank financial institutions. Our results are robust to alternative event windows and falsification tests. In contrast, country-level estimations show that tighter minimum capital restrictions constrain the growth of fintech platforms in South Africa, while innovation plays a crucial role in driving the growth and funding of fintech ventures in select African economies. Our results highlight the need for targeted policies that enable and sustain a vibrant fintech ecosystem. |
| Date: | 2024–11–08 |
| URL: | https://d.repec.org/n?u=RePEc:rbz:wpaper:11070 |
| By: | Haug, Sebastian; Novoselova, Anna; Klingebiel, Stephan |
| Abstract: | The United States of America has long been a leading force in international development cooperation, both politically and financially. However, the first weeks of the second Trump administration have called the traditional role of US foreign aid fundamentally into question. From a 90-day funding freeze to the withdrawal from United Nations (UN) bodies and the dismantling of the US Agency for International Development (USAID), measures taken by Trump and his team are not only having palpable repercussions on a wide range of humanitarian and development programmes, but they also point to more far-reaching implications. Against this backdrop, this paper presents the contours and discusses the global consequences of Trump's assault on US foreign aid, as of late February 2025. We outline the extant role of the United States as a donor in Section 2 and review the changes announced - and/or implemented - by the current US government in Section 3. Section 4 discusses the implications of US funding cuts for bilateral cooperation, while Section 5 focuses on repercussions on multilateral development work. Section 6 outlines three scenarios on how the ongoing changes in the United States might affect the field of international development. We discuss the possible ramifications of (a) a revamped US approach to foreign aid centring on crude national interests, (b) a US retreat that is at least partially offset by other providers and (c) a US retreat without other providers stepping in. Section 7 concludes by discussing the implications for dealing with the second Trump administration. We outline four recommendations that address stakeholders across the - increasingly outdated - donor-recipient divide: (1) refining development cooperation approaches, (2) strengthening the multilateral development system, (3) promoting Southern self-reliance and (4) fostering alliances beyond a Trump-led US government. |
| Keywords: | USA, USAID, foreign aid, development cooperation, development policy, Donald Trump, United Nations, multilateralism |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:diedps:313624 |
| By: | Branimir Jovanović (The Vienna Institute for International Economic Studies, wiiw); Sonja Stojadinović |
| Abstract: | This note examines the grants and loans provided by the European Union (EU) and China to the Western Balkan economies. The EU remains dominant in grant funding, with annual Instrument for Pre-accession Assistance (IPA) grants averaging 0.8% of the region’s GDP, far above the 0.02% of GDP from Chinese grants. In terms of loans, however, China has nearly caught up with the EU. On an annual basis, the EU has committed loans equal to approximately 1.5% of the region’s GDP, while China has provided loans in the amount of 1.2%. Notably, in Serbia, China’s loan portfolio now exceeds the size of the EU’s. EU loans are cheaper and more transparent but come with stricter conditions for implementation and requirements for institutional reforms. In contrast, Chinese loans are more flexible and quicker to implement, making them appealing to Western Balkan politicians. However, this flexibility comes at a cost, as Chinese loans are significantly more susceptible to corruption, often deliver questionable quality, and have been linked to various drawbacks, such as workers’ rights violations and environmental degradation. |
| Keywords: | EU, China, Western Balkans, grants, loans, investment |
| JEL: | F21 F35 H81 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:wii:pnotes:pn:92 |
| By: | Cottiero, Christina; Schneider, Christina J |
| Abstract: | International financial institutions (IFIs) are often perceived as engines of economic and political liberalization. Yet, despite their outsized influence in shaping the development trajectories of recipient nations, the lending strategies of IFIs dominated by authoritarian regimes remain underexplored. We argue that autocratic IFIs are not merely neutral economic actors; rather, they strategically allocate aid to reinforce authoritarian resilience. Our analysis reveals that these institutions disproportionately channel funds to authoritarian governments confronting acute domestic or international challenges to their rule, such as coup risk, political conflict, or democratic mobilization. We introduce a comprehensive, original dataset tracking the lending behavior of 20 autocratic IFIs across 143 recipient countries from 1967–2021. Our findings uncover a striking pattern: aid flows from autocratic IFIs increase precisely when authoritarian regimes are most vulnerable. By situating these insights within the broader aid allocation literature, we provide a fresh perspective on the political calculus of international development lending, with profound implications for understanding global power dynamics. |
| Keywords: | Social and Behavioral Sciences, foreign aid, development, authoritarianism, illiberal networks, democratization |
| Date: | 2025–04–09 |
| URL: | https://d.repec.org/n?u=RePEc:cdl:globco:qt63z4m8qw |
| By: | Betz, Timm (Washington University in St. Louis); Pond, Amy |
| Abstract: | How do democratic institutions shape financial market regulation? Focusing on the government’s fiscal motives in financial market regulation, we present a new dataset documenting policies that governments use to place their own debt in an advantageous position on financial markets. These policies, which we call borrowing privileges, commonly require that banks and institutional investors hold their own government’s debt, and take a place in-between prudential and repressive regulation. Drawing on data for 58 non-OECD countries, we document that borrowing privileges are more likely to be implemented in countries with democratic institutions. Focusing on the mechanisms for this association, we show that several characteristics typically associated with democracies – increased revenue needs from trade liberalization, political competition and transparency, and the growth of financial markets – make these policies attractive to policy-makers. We contribute to the literature on the institutional sources of financial regulation and show how governments balance the growth of financial markets with revenue concerns. |
| Date: | 2025–03–26 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:z4kpa_v1 |
| By: | Betz, Timm (Washington University in St. Louis); Pond, Amy |
| Abstract: | The ability to borrow is important for government survival. Governments routinely resort to policies that privilege their own debt on financial markets, exploiting their dual role as borrowers and regulators. These borrowing privileges nudge investors to hold the government's own debt. They share similarities with prudential regulation, but skew the market in favor of the government's debt; and they share similarities with financial repression, but are less severe and thus consistent with the growth of financial markets. Introducing the first systematic dataset documenting the use of such policies across countries and over time, we demonstrate that governments implement borrowing privileges when their interactions with the global economy heighten fiscal needs: when borrowing costs indicate tightened access to credit, when trade liberalization undercuts revenue, and where fixed exchange rates increase the value of fiscal space. Despite the mobility of financial assets and constraints from global markets, governments retain latitude in regulating domestic markets to their own fiscal benefit. |
| Date: | 2025–03–26 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:gr37y_v1 |
| By: | Danny Hermawan (Bank Indonesia); Cicilia Anggadewi Harun (Bank Indonesia); Wicaksono Aryo Pradipto (Bank Indonesia); Yulian Zifar Ayustira (Bank Indonesia); Alvin Andhika Zulen (Bank Indonesia); Amin Endah Sulistiawati (Bank Indonesia); Ade Dwi Aryani (Bank Indonesia); Sintia Aurida (Bank Indonesia) |
| Abstract: | With the constant diruptions in the economy stemmed from global market turbulence, technological changes, and shift toward a more sustainable way of life, understanding banking behavior become a priority to maintain financial stability. This study examines the credit allocation behavior of banks in Indonesia, influenced by economic conditions, regulatory frameworks, technological advancements, and sector-specific challenges. Bank credit plays a vital role in macroeconomic stability, and economic fluctuations impact banks procyclical credit behavior. The Indonesian banking sector faces complex pressures and sectoral risks, emphasizing the need for solid policies from Bank Indonesia to maintain financial system stability. This research addresses two main questions: how client relationships affect credit supply decisions and how structural changes such as interest rates, climate change, and cybersecurity influence bank behavior. Utilizing primary and secondary data as well as machine learning (ML) methods, the study reveals insights into credit supply practices in Indonesian banks and the potential of big data and ML for a detailed assessment of credit distribution patterns. The findings highlight the importance of stricter oversight, technological integration, and sectorspecific strategies, especially for SMEs and high-risk sectors such as tourism and mining. The study emphasizes integrating green finance, RegTech, and SupTech to enhance banking sector resilience and align credit activities with sustainability goals. By applying these insights, Indonesia can create a stable credit environment, support economic growth, and ensure banks are prepared to manage evolving risks in the financial landscape. |
| Keywords: | bank behavior, credit growth, credit supply, machine learning |
| JEL: | E51 G21 G28 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:idn:wpaper:wp112024 |
| By: | Michelle W. Bowman |
| Date: | 2025–02–27 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgsq:99635 |
| By: | Michael S. Barr |
| Date: | 2025–02–25 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgsq:99632 |
| By: | Patrick T. Harker |
| Abstract: | Speaking at today’s Fintech and Financial Institutions Conference, Federal Reserve Bank of Philadelphia President and CEO Patrick Harker stated that “the explosion of fintech options has been nothing short of a sea change in how we look at, interact with, and even conceive of money.” In the context of the Fed’s role to ensure a sound financial system, Harker emphasized the opportunities and challenges of rapidly evolving technologies. As fintech options proliferate, Harker noted “we have an opportunity to look anew at how new fintech applications are constructed, how they intend to operate, and which systems they intend to improve upon if not replace outright.” |
| Keywords: | Fintech |
| Date: | 2025–04–10 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedpsp:99811 |
| By: | Julian A. Parra-Polania; Constanza Martínez-Ventura |
| Abstract: | We examine the optimal design of central bank digital currencies (CBDCs) by focusing on two key features: the anonymity-security trade-off and the remuneration (i.e., interest rate). Building on the extended model by Agur et al. (2022), which accounts for potential negative externalities associated with the anonymity of payment methods, we incorporate the possibility of multiple CBDCs into the framework. Our findings reveal that with optimally designed CBDCs and when anonymity costs are significant, a cashless economy is the preferred choice for the central bank. Furthermore, irrespective of anonymity costs, an economy with cash and one or more CBDCs is welfare dominated by a cashless economy with one additional CBDC. These results underscore the exibility and welfare-enhancing potential of CBDCs compared to cash in modern payment systems. **** RESUMEN: Analizamos el diseño óptimo de las monedas digitales de los bancos centrales (CBDC), centrándonos en dos características clave: la disyuntiva entre anonimato versus seguridad y la remuneración (tasa de interés). Con base en el modelo extendido de Agur et al. (2022), que considera las posibles externalidades negativas asociadas con el nivel de anonimato de los métodos de pago, incorporamos la posibilidad de múltiples CBDCs. Nuestros hallazgos revelan que con CBDCs óptimamente diseñadas, y cuando los costos de la anonimato son relativamente altos, una economía sin efectivo es la opción preferida del banco central. Adicionalmente, independientemente de los costos de la anonimato, una economía con efectivo y una o más CBDCs es menos preferida, en términos de bienestar social, que una economía sin efectivo y con una CBDC adicional. Estos resultados resaltan la flexibilidad y el potencial de mejora del bienestar de las CBDCs en comparación con el efectivo en los sistemas de pago modernos. |
| Keywords: | CBDC, optimal design, anonymity, security, digital currency, cashless economy, CBDC, diseño óptimo, anonimato, seguridad, monedas digitales, economía sin efectivo |
| JEL: | D60 E41 E42 E43 E58 G21 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:bdr:borrec:1311 |
| By: | Georgarakos, Dimitris; Kenny, Geoff; Laeven, Luc; Meyer, Justus |
| Abstract: | We field a series of experiments in a population-representative survey of European consumers to examine their attitudes towards the possible introduction of a digital euro. First, we show that a short video explaining the key features of the digital euro is effective in changing consumers’ beliefs about such a new form of payment and increases the likelihood of adoption by 12pp relative to a control group that is not shown the video. Second, we find that on aggregate consumers would allocate a relatively small fraction from a positive wealth shock to digital euros and their allocation to other liquid assets would be little affected. Third, holding limits in the range of €1, 000 to €10, 000 have insignificant differential effects on the composition of liquid asset holdings. We also show that a non-trivial fraction of consumers report that they will not adopt the digital euro due to strong preferences for existing forms of payment. JEL Classification: E41, E58, D12, D14, G51 |
| Keywords: | Central Bank Digital Currencies (CBDC), consumer expectations survey, household expectations, household finance, money, payments, Randomized Control Trial (RCT) |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253035 |
| By: | Masataka Mori; Juan M. Sanchez |
| Abstract: | An analysis of 2022 survey data found that only about 4.3% of U.S. households owned cryptocurrency and an even smaller proportion held large amounts. |
| Keywords: | cryptocurrencies |
| Date: | 2025–03–11 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00001:99689 |
| By: | Christoph Hambel; Frederick Van Der Ploeg |
| Abstract: | We analyze the effects of policy transition risk on asset pricing and the green transition using a global two-sector, macro-finance model of climate and the economy. Policy transition risk results from probabilistic changes between three policy states: no, modest, and ambitious carbon pricing. We show that policy transition risk leads to carbon premiums (i.e. higher expected returns on brown than on green assets), especially if the economy is still quite carbon-intensive and close to the temperature cap, and thus accelerate the green transition. Increased transition risk leads to more precautionary saving and falls in the risk-free rate. We offer extensions to deal with physical risks (temperature-related risk of climate disasters and climate tipping), technology transition risk, and more realistic policy tipping with endogenous transition probabilities. |
| Date: | 2025–03–27 |
| URL: | https://d.repec.org/n?u=RePEc:oxf:wpaper:1075 |