Working Paper: CEPR ID: DP16977
Authors: Franklin Allen; Xian Gu; Julapa Jagtiani
Abstract: Fintech and decentralized finance have penetrated all areas of the financial system and have improved financial inclusion in the last decade. In this paper, we review the recent literature on fintech, cryptocurrencies, stablecoins, and central bank digital currencies (CBDCs). There are important implications from the rise of fintech and the introduction of stablecoins and CBDC in recent years. We provide an overview of China’s experience in fintech, focusing on payments, digital banking, fintech lending, and the recent progress on its CBDC pilots (e-CNY). We also discuss important considerations in designing effective cryptocurrency regulations. Cryptocurrency regulations could promote growth of innovations through enhanced public confidence in this market. The e-CNY could become mainstream in the global market through effective regulations which provide incentives and protection to market participants. A key factor to success for digital currencies has been their widespread adoption. If the Chinese e-CNY were to become a mainstream currency, the introduction of CBDC could potentially offer solutions to existing problems inherent in the traditional financial systems
Keywords: fintech; cryptocurrency regulations; stablecoins; CBDCs; eCNY; China
JEL Codes: G21; G28; G18; L21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| introduction of stablecoins and CBDCs (E42) | financial inclusion and efficiency in payment systems (E42) |
| fintech innovations (O16) | access to credit for SMEs (E69) |
| effective cryptocurrency regulations (G18) | innovation in the crypto market (O35) |
| effective cryptocurrency regulations (G18) | consumer protection (D18) |
| growth of fintech (O16) | disruption of traditional banking systems (F65) |