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  • Financial Markets and the Macroeconomy x
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Cover Finance & Development
The Superficial Allure of Crypto
International Monetary Fund. Communications Department

PHOTO: BEN GEBO

Keywords:
Ethereum blockchain; promise of decentralization; blockchain consensus mechanism; bitcoin's blockchain; crypto ecosystem; Virtual currencies; Blockchain and DLT; Fintech; Financial inclusion
Cover IMF Staff Country Reports
Sierra Leone: Selected Issues
International Monetary Fund. African Dept.

This paper takes stock of digitalization in Sierra Leone and identifies several factors requiring attention to accelerate digitalization. These factors range from relatively higher cost of the internet, low quality of service, legal and regulatory challenges, low private sector participation, lack of adequate IT skills, and lack of supportive infrastructure gaps. Notwithstanding some challenges, it finds that adoption of digitalization has picked-up in government operations, providing a solid platform for efficient, transparent and effective PFM and improved service delivery in priority sectors such as health, education and agriculture. A wider adoption of Digital Financial Services (DFS) could increase the ease and speed of payments as well as enhancing financial inclusion in Sierra Leone.

Keywords:
government of Sierra Leone; IMF staff calculation; transmission mechanism; IT skill; customer base; Digitalization; Digital financial services; Financial inclusion; Mobile banking; Global; Sub-Saharan Africa; West Africa; bank-intermediated payment
Cover IMF Working Papers
Digitalization and Resilience: Firm-level Evidence During the COVID-19 Pandemic
Nordine Abidi, Mehdi El Herradi, and Sahra Sakha
The COVID-19 pandemic has resulted in an unprecedented shock to firms with adverse consequences for existing productive capacities. At the same time, digitalization has increasingly been touted as a key pathway for mitigating economic losses from the pandemic, and we expect firms facing digital constraints to be less resilient to supply shocks. This paper uses firm-level data to investigate whether digitally-enabled firms have been able to mitigate economic losses arising from the pandemic better than digitally-constrained firms in the Middle East and Central Asia region using a difference-in-differences approach. Controlling for demand conditions, we find that digitally-enabled firms faced a lower decline in sales by about 4 percentage points during the pandemic compared to digitally-constrained firms, suggesting that digitalization acted as a hedge during the pandemic. Against this backdrop, our results suggest that policymakers need to close the digital gap and accelerate firms’ digital transformation. This will be essential for economies to bounce back from the pandemic, and build the foundations for future resilience.
Keywords:
COVID-19; digitalization; technology adoption; economic resilience; Middle East and Central Asia; digitally-enabled firm; digitally-constrained firm; firms in the Middle East; firm-level data; digital transformation; Digitalization; Financial inclusion; Foreign corporations; Asia and Pacific; Africa; Middle East; North Africa
Cover IMF Working Papers
Does IT Help? Information Technology in Banking and Entrepreneurship
Toni Ahnert, Sebastian Doerr, Mr. Nicola Pierri, and Mr. Yannick Timmer
This paper analyzes the importance of information technology (IT) in banking for entrepreneurship. To guide our empirical analysis, we build a parsimonious model of bank screening and lending that predicts that IT in banking can spur entrepreneurship by making it easier for startups to borrow against collateral. We provide empirical evidence that job creation by young firms is stronger in US counties that are more exposed to ITintensive banks. Consistent with a strengthened collateral lending channel for IT banks, entrepreneurship increases more in IT-exposed counties when house prices rise. In line with the model's implications, IT in banking increases startup activity without diminishing startup quality and it also weakens the importance of geographical distance between borrowers and lenders. These results suggest that banks' IT adoption can increase dynamism and productivity.
Keywords:
technology in banking; entrepreneurship; information technology; collateral; screening; banks' IT adoption; importance of information technology; IT in banking; startup activity; bank screening; Collateral; Self-employment; Employment; Job creation
Cover Finance & Development
Finance & Development, March 2021
International Monetary Fund. Communications Department
Finance & Development, March 2021
Keywords:
FD; F&D; data bias; data economy; big data analytics; Afordable internet access; location data; digital ID; expansionary monetary policy; community currency; government policy; COVID-19; Cyber risk; Migration; Financial inclusion; Global; Africa; Sub-Saharan Africa; Europe; Asia and Pacific; IMF economist; inflation revival; private sector innovation; cash use; Consumer credit
Cover Finance & Development
From Financial Innovation to Inclusion
For technology to benefit everyone, private sector innovation needs to be supported by public goods
Jon Frost, Gambacorta Leonardo, and Song Shin Hyun

A bank employee explains how to make transactions with a mobile phone using the Aadhaar digital identification system in Hyderabad, India.

Keywords:
FD; F&D; data bias; data economy; big data analytics; Afordable internet access; location data; digital ID; expansionary monetary policy; community currency; government policy; COVID-19; Cyber risk; Migration; Financial inclusion; Global; Africa; Sub-Saharan Africa; Europe; Asia and Pacific; public goods; tech company; payment application; Big Tech payment provider; data privacy authorities; Competition
Cover IMF Working Papers
Stay Competitive in the Digital Age: The Future of Banks
Miss Estelle X Liu
The latest advancement in financial technology has posed unprecedented challenges for incumbent banks. This paper analyzes the implications of these challenges on bank competitveness, and explores the factors that could support digital advancement in banks. The analysis shows that the traditionally leading role of banks in advancing financial technology has diminished in recent years, and suggests that onoing efforts to catch up to the digital frontier could lead to a more concentrated banking industry, as smaller and less tech-savvy banks struggle to survive. Cross-country evidence has suggested that banks in high-income economies appear to have been the digital leaders, likely benefiting from a sound digital infrastructure, a strong legal and business environment, and healthy competition. Nonetheless, some digital leaders may fall behind in the coming years in adopting newer technologies due to entrenched consumer behavior favoring older technologies, less active fintech and bigtech companies, and weak bank balance sheets.
Keywords:
Banks; WP; bank digitalization; digitalization progress; bank service digitalization; bank characteristic; bank competitiveness; Digitalization; bank concentration; bank condition; bank firm; Emerging technologies; Financial sector development; Global
Cover Departmental Papers
Strategy for Fintech Applications in the Pacific Island Countries
Sonja Davidovic, Ms. Elena Loukoianova, Cormac Sullivan, and Hervé Tourpe
The Bali Fintech Agenda highlights 12 principles for policymakers to consider when formulating their approaches to new financial technology (fintech). The agenda aims to harness the potential of fintech while managing associated risks. This paper looks at how some elements of the Bali Fintech Agenda could be used in Pacific island countries, which face significant financial-structural challenges.
Keywords:
DPPP; DP; private sector; payment system; data protection; Pacific island countries; big data; credit scoring; financial system; business model; transaction costs; due diligence; feasibility study; capital investment; utility payment record; solar-panel-enabled payment device; payment development; payment history; customer data; identity system; Fintech; Financial inclusion; Mobile banking; Pacific Islands; Australia and New Zealand
Cover IMF Working Papers
Financial Constraints, Intangible Assets, and Firm Dynamics: Theory and Evidence
Sophia Chen
I study whether firms' reliance on intangible assets is an important determinant of financing constraints. I construct new measures of firm-level physical and intangible assets using accounting information on U.S. public firms. I find that firms with a higher share of intangible assets in total assets start smaller, grow faster, and have higher Tobin’s q. Asset tangibility predicts firm dynamics and Tobin’s q up to 30 years but has diminishing predicative power. I develop a model of endogenous financial constraints in which firm size and value are limited by the enforceability of financial contracts. Asset tangibility matters because physical and intangible assets differ in their residual value when the contract is repudiated. This mechanism is qualitatively important to explain stylized facts of firm dynamics and Tobin’s q.
Keywords:
WP; intangible assets; market value; Financial constraints; firm dynamics; Tobin’s q; asset tangibility; production parameter; selling; general; and administrative; entrant firm; share of intangible assets; Aging; Asset valuation; Stocks; Financial frictions
Cover IMF Working Papers
Financial Innovation and Risk, the Role of Information
Mr. Roberto Piazza
Financial innovation has increased diversification opportunities and lowered investment costs, but has not reduced the relative cost of active (informed) investment strategies relative to passive (less informed) strategies. What are the consequences? I study an economy with linear production technologies, some more risky than others. Investors can use low quality public information or collect high quality, but costly, private information. Information helps avoiding excessively risky investments. Financial innovation lowers the incentives for private information collection and deteriorates public information: the economy invests more often in excessively risky technologies. This changes the business cycle properties and can reduce welfare by increasing the likelihood of "liquidation crises"
Keywords:
WP; appendix E; business cycle; mover accent