Wednesday, December 16, 2020 / 12.47AM / By
Kristalina Georgieva / Header Image Credit: IMF
Being a speech by the IMF Managing Director, Kristalina
Georgieva at the (Virtual) Singapore FinTech Festival 2020. As prepared for delivery
Thank you, Manisha, for
the warm introduction, and thank you to the Monetary Authority of Singapore for
the invitation. It's a great honor to join policymakers and entrepreneurs from
around the world.
2020 has been an extremely
difficult year. The pandemic has caused immense suffering. Too much of the
economic toll has been borne by the most vulnerable people, in wealthier and in
poorer countries alike.
But there are some bright
spots. Heroic nurses and doctors saving lives. Essential workers keeping the lights
on, water running, and store shelves full.
And there are many others
who kept businesses going - like the people of the technology industry. You
have profoundly changed our ways of working, interacting, and living our daily
lives. You have brought the digital future to our fingertips - and to our doorsteps.
Let me capture a vision of
that future, and the four cornerstones needed to
build it.
Picture a furniture maker - a skilled artisan - working in a factory in
Thailand. Recession hits. She loses her job. Then, with an unemployment benefit
sent to her phone, she starts her own workshop and sells locally.
The artisan makes and
receives mobile payments. She chooses to share her payment data, allowing her
to get an online loan, to hire people and grow her business.
One day she gets a message asking if she ships abroad.
You no longer have to be big to be global.
A digital platform
processes her payments from abroad at a low cost. And it provides insurance,
savings, and investment options for her deposits, making her livelihood more
resilient.
None of this would have
been possible even ten years ago.
This is a story about
human drive and ingenuity...
A story about a revolution
in payments that erases physical distance; that generates data-which is
the new gold and hence often the new collateral. It is about
payments that are cheap and widely accessible; that are seamlessly integrated
in our digital lives.
And as the way we
make payments changes, our world changes. We can provide access
to financial services for 1.7 billion adults who are still unbanked. And help
many more vulnerable people who are currently paying high fees.
Also, the banking and
financial industry is being reshaped by data, automation, and real-time
analytics. Finally, payment innovations can change the international
monetary system - the ways in which we transact across
borders, access foreign assets, exchange currencies, and price goods.
Digital payments are not
just for the tech-savvy - they have huge implications for the whole world.
So we must tread
courageously - and carefully. We must ensure that payments evolve to meet user
needs while remaining safe and resilient. That's at the micro level. And at the
macro level, we need to foster a financial sector and international monetary
system that are efficient and trusted, equitable and inclusive, and still
dynamic.
The artisan's digital future will rest on four cornerstones: (i) private sector
innovation; (ii) public sector
involvement (iii) regulatory and legal
frameworks; and (iv) international cooperation.
Let's look at each.
I. Private-sector
innovation
Private sector innovation
has served many people well. Think of the bank accounts in which we save, and
the cards we use to pay. Or the mobile money of our artisan.
Many people still use
cash, but the numbers can decrease rapidly: take Sweden, where only 10 percent
of the adult population still uses cash, down from 40 percent a decade ago. In
the same period, mobile money accounts in Kenya increased exponentially from 12
million to 61 million more than the country's population.
The private sector is best able to gauge the needs of
people and businesses, provide the diversity of products and services they
want, and take the risks necessary for innovation.
But we must ensure
these risks do not translate into risks to end-users or the financial system.
And we must avoid other pitfalls - such as monopoly power, or underserving
vulnerable people.
For that, we need the
other three cornerstones.
II. Public-sector
involvement
The next one is public
sector involvement, to provide verifiable digital ID, communications
infrastructure, central bank money, and other necessities.
Digital ID allows our
artisan to enroll in new financial services. It is one precondition to
financial inclusion.
The other is internet
access - our story only works if the artisan is online. And nearly half the
world's people are not, including 75 percent of the population
in Sub-Saharan Africa and nearly 70 percent in South Asia. The picture is
reversed in North America, where 75 percent are connected.
The IMF strongly encourages investment in
infrastructure now, as part of post-COVID recovery efforts.
A synchronized public investment push is best. If countries act together, they
can achieve two-thirds more at the same cost than if each country acts alone.
And they can draw in
critical private investment, too.
And of course, central
bank money - traditionally notes, coins, and reserves - remains
essential. The ability of our Thai artisan to convert the digital money she
receives into local currency on demand is a key metric of stability.
Central bank currency also
helps her accept payments in mobile money issued by different providers. Just
like a common language, central bank money allows one provider to pay another.
With this foundation, each fintech company can offer and evolve its own
services. Interoperability gives wings to innovation and diversity in payments.
How should central bank
money evolve in the digital age? As new payment providers emerge, will they,
too, have access to central bank money? Will a digital version of notes and
coins be introduced? Many countries are considering just that possibility.
While the form of central
bank money may change, its function should not. It should still anchor the
stability of other forms of money, while enabling their evolution and
diversity.
III. Regulatory and legal
frameworks
The third cornerstone is
equally important - robust regulatory and legal frameworks. They should allow
innovation and start-ups to flourish, while achieving essential goals:
protection and privacy for consumers, countering money laundering and other
crimes, and providing stability and resilience for all.
Regulatory clarity is essential, and particularly
challenging as technology and products evolve rapidly. Starting a business is not difficult because there are multiple forms
to fill out. The real impediment is not knowing how many more there will be.
New entrants will ask: what rules am I subject to? Will my product be
considered a deposit, a security, a payment system, or something else?
In the tradition of Lee
Kuan Yew, Singapore's government continues to innovate - its new payments law
is promising. It seeks to define digital payment instruments, and to adopt an
activity- and risk-based approach to regulating payments.
Done right, that levels the
playing field for new entrants: same activity, same risks... same rules.
But evaluating these risks raises new questions. For instance, our artisan
offered payments data in place of collateral. But are loans based on more
accurate data and analytics less risky? Should she pay less?
Lawmakers and regulators
should be given the resources to succeed and stay ahead of the curve. They will
need to be far-sighted and collaborative given the wide ramifications of new
payments: central banks and finance ministries working with antitrust agencies,
privacy groups, data-protection agencies, law enforcement, civil society, and
consumer advocates, just to name a few.
IV. International
cooperation
And just as money crosses
borders, so too must our regulatory efforts. This brings me to the final
cornerstone: international cooperation, including to facilitate international
payments and manage spillover effects.
Will our artisan be able
to send money across borders as easily as we send text messages? Or will she
have to pay seven percent average fees, as do today's 800 million
people who depend on remittances?
But sending money is more
involved than sending texts. It will require technology standards between
digital monies, mutual regulatory and legal treatment, and ID systems that are
trusted across borders. The Financial Stability Board, with IMF support, recently
offered a roadmap to enhance cross border payments. But much work lies ahead to
implement it.
Cooperation is also key to
address spillovers. As digital money becomes more widespread, effects will
ripple around the world. These include domestic currencies
being swapped for more enticing foreign currencies, reduced monetary policy
effectiveness, and circumvention of capital account restrictions.
Spillovers can be even
more far-reaching. Under some conditions, new digital money can
affect the international monetary system.
The nations of the world
created the IMF to help them guide the international monetary system and make
it an engine of growth for everyone. At a time when the
risk of further divergence between rich and poor has increased, we recognize
that responsibility has never been greater.
Today, we stand ready to
help foster a more resilient monetary system - one that is more inclusive,
smarter, and greener.
Nobel Peace Laureate and
former Liberian President Ellen Johnson Sirleaf once said, "If your dreams do
not scare you, they are not big enough."
Global companies, start-up
entrepreneurs, and our artisan are dreaming big. We need to make the payments
revolution work for all.
Thank you.
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