Digital Money, Cross-Border Payments, International Reserves, and the Global Financial Safety Net: Preliminary Considerations

This paper explores the implications of digital money for the international monetary system from the perspective of cross-border payments, international reserves, and the global financial safety net.
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Volume/Issue: Volume 2024 Issue 001
Publication date: January 2024
ISBN: 9798400253478
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Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Economics- Macroeconomics , Economics / General , digital money , international monetary system , cross-border payments , international reserves , global financial safety net , global safe assets

Summary

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.