The Rise of Digital Money (IMF Fintech)

Summary

• E-money and i-money represent new forms of digital money competing directly with traditional cash and bank deposits.p.4
• In Kenya, adoption of e-money became widespread among people over age 14 using services like M-Pesa.p.11
• Social messaging apps like WhatsApp expanded rapidly, surpassing the 1.5 billion users mark through network effects.p.11
• Price volatility in public cryptocurrencies like Bitcoin can be approximately 10 times higher than standard G7 currency pairs.p.9
• Bank deposit outflows following e-money adoption could be mitigated if credit growth increases steadily, as observed after 2008 in Kenya.p.14
• Under a synthetic CBDC model, central banks provide reserve accounts to e-money issuers who hold central bank reserves one for one.p.17

Key insights

1. E-money functions as a fixed-value claim on private issuers without direct government backstops like deposit insurance.p.7
2. Public cryptocurrencies exhibit day-on-day price volatility that is roughly 10 times higher than G7 currency pairs.p.9
3. Network effects and integration into online platforms can drive payment service adoption faster than traditional email platforms.p.11
4. Rapid migration from bank deposits to e-money can force commercial banks to swap retail funding for wholesale funding.p.10
5. E-money adoption can enhance financial inclusion and stimulate credit growth in emerging market economies.p.14
6. A synthetic CBDC model allows central banks to outsource customer-facing services to private e-money providers while maintaining trust.p.17