Two Sides of a Digital Coin: Comparison of CBDC and Cryptocurrencies

This study uses annual data over the period 2005-2014 and the Panel VECM approach to examine financial inclusion and monetary policy effectiveness in Africa. The study shows that financial inclusion and monetary policy effectiveness are linked by a set of long-run relationships. Policy reaction to the positive financial inclusion shock is not significant. Policy reaction to the positive money supply shock is statistically significant and positive in the short-run while reactions are not significantly different from zero in the long-run. On the other hand, the positive interest rate has a positive and statistically significant permanent effect on the level of monetary policy effectiveness. To various degrees, financial inclusion, money supply and interest rate shocks have some role in explaining variations in monetary policy effectiveness, but in the long-run, more than 45 percent of variations in policy effectiveness are explained by interest rate shocks. Moreover, there exists a one-way causality from monetary policy effectiveness to financial inclusion. This study establishes that financial inclusion is not a significant driver of monetary policy effectiveness in Africa. On the contrary, monetary policy effectiveness is the driver of financial inclusion. For increased financial inclusion in Africa, therefore, heightened effectiveness of monetary policy will be required.

The study explores the causal relationship between monetary policy effectiveness and financial inclusion in developed and under-developed countries. Structural Vector Auto-regressive techniques have been inducted to explore the relationship between monetary policy effectiveness and financial inclusion. The study covers the secondary data of 10 developed and 30 underdeveloped countries throughout 2004–2018. It is concluded that monetary policy effectiveness and financial inclusion do not have a contemporaneous impact on each other. Nevertheless, the reduced-form Vector Auto-regressive witness the reverse causality between financial inclusion and monetary policy effectiveness in developed countries. Thus, effective monetary policy enhances financial inclusion in a country, and a higher degree of financial inclusion lowers the inflation rate and makes monetary policy effective. One way causality from monetary policy effectiveness to financial inclusion can be observed in under-developed countries. Using the Structural Vector auto-regressive technique and financial inclusion index composed of three-dimension to examine the relationship of monetary policy effectiveness and financial inclusion in developed and developing countries is considered the study’s significant contribution.

Monetary policy ensures the financial system stabilization. Financial inclusion, characterized by the access and use of available financial services (credit, savings, payments, insurance at a low cost), by a broader population, may explain the effectiveness of the monetary policy, especially in developing countries. The objective of this study is to carry out a comparative analysis between the countries of Sub-Saharan Africa (SSA) and the countries of Latin America and the Caribbean (LAC), on the causal relationship between financial inclusion and monetary policy, as well as to assess the impact of financial inclusion over monetary policy. To support our study, we applied the panel vector autoregressive (PVAR) methodology, simple panel data models, and a feasible generalized least squares (FGLS) model. Results provide strong evidence of the existence of reverse causality between financial inclusion and monetary policy in both SSA and LAC, with monetary policy facilitating financial inclusion in both regions. Financial inclusion increases the effectiveness of monetary policy in SSA, while for LAC financial inclusion improves the efficiency of monetary policy. Thus, increased access to and use of financial services increase the efficiency of monetary policy in controlling inflation. Governments are encouraged to design or enhance policies that expand financial services, as well as to promote investment in financial inclusion in developing countries, to maintain the monetary system stability.

Financial Inclusion, Policy Initiatives and Implications in India

PurposeFintech plays a prominent role in augmenting the financial inclusion of the population and increasing the money supply, which calls for the intervention of monetary policy. This article is an attempt to examine the relationship between the financial inclusion, fintech and monetary policy effectiveness of the Indian economy, within the framework of wealth creation and transmission mechanism through the cost of capital.Design/methodology/approachOn the quarterly data retrieved from multiple sources, autoregressive distributed lagged regression is used to examine the relationship between different variables as explained in four set models; after which the Toda–Yamamoto causality test is employed to capture the direction of the relationship.FindingsThe study finds a positive relationship between financial inclusion, fintech and inflation taken as a proxy for Monetary Policy Effectiveness (MPE) in the short as well as in the long run. However, the relationship between fintech and inflation is negative once the cost of capital is included in the models. The causality test exhibits the uni-directional causality from fintech to MPE and MPE to financial inclusion. Bi-directional causality exists between wealth and MPE. Similarly, bank rate and interbank rate are bound by bi-directional causality.Research limitations/implicationsBeing financially included facilitates ease and boosts public access to more financial services and credit, leading to increased demand and hence inflation. Hence government and regulators need to take mindful measures to enhance the fintech development and financial inclusion to make the monetary policy effective.Originality/valueAs per the author's best knowledge, this is the first study to examine the relationship between fintech, financial inclusion and monetary policy effectiveness in the context of the Indian economy.

The study investigates the impact of monetary policy on the level of financial inclusion in the big-five emerging market countries from 2004 to 2020. Several indicators of financial inclusion and the central bank interest rate were used in the analysis. It was found that the monetary policy rate has a mixed effect on financial inclusion, and the effect depends on the dimension of financial inclusion examined. Specifically, a high monetary policy rate has a significant negative impact on financial inclusion through a reduction in the number of depositors in commercial banks. A high monetary policy rate also has a significant positive impact on financial inclusion through greater bank branch expansion. The policy implication is that both contractionary and expansionary monetary policies lead to positive improvements in specific indicators of financial inclusion, because increase in interest rate leads to bank branch expansion which is beneficial for financial inclusion and decrease in interest rate leads to increase in the number of depositors in commercial banks which is also beneficial for financial inclusion. It was also found that the rising monetary policy rate has a negative effect on all indicators of financial inclusion in the post-financial crisis period. Overall, the effect of monetary policy on financial inclusion seem to depend on the monetary policy tool used by the monetary authority and the dimension of financial inclusion examined. The monetary authorities should pay attention to how their monetary policy choices might affect the level of financial inclusion and reduce the benefits that society gains from financial inclusion.

Enhancing financial inclusion is considered a crucial factor in achieving global objectives such as ensuring sustainable growth, improving societal welfare, and reducing poverty. Due to its significance, financial inclusion has recently emerged as a key global policy issue and a frequently studied topic in the literature. This study examines the mutual relationship between financial inclusion and monetary policy in upper-middle-income countries using the Two-Step System GMM and Panel Granger Causality methods. The findings derived from the analyses indicate an inverse relationship between inflation and financial inclusion. In other words, while inflation negatively affects financial inclusion, an increase in financial inclusion also exerts a negative impact on inflation. Regarding other variables, digitalization, regulatory quality, and money supply have a positive effect on financial inclusion. On the other hand, the growth of money supply and deposit interest rates positively influence the inflation rate. Furthermore, the results of the Granger causality analysis reveal a causal relationship from financial inclusion to inflation. In light of the findings, policymakers in upper-middle-income countries are advised to adopt a balanced monetary policy that enhances financial inclusion while keeping inflation under control, consider that excessively expansionary policies may intensify inflationary pressures and weaken financial inclusion, and take into account that increasing financial inclusion can help mitigate the adverse effects of inflation when formulating regulations.

This study aims to analyze the effectiveness of monetary policy. It is important to study the influence channel of monetary policies on the real economy. Based on the structural VAR model, this study uses the monthly data from the Chinese financial sector and actual macroeconomic variables from January 2001 to December 2020 to analyze the influence channel of monetary policy and its impact on the real economy in order to find out about the effectiveness of monetary policy. Focusing on before and after the global financial crisis, this study elaborates on the transmission effects of monetary policy before and after the global financial crisis. The results are as follows. In terms of the impact of rising interest rates, before and after the global financial crisis, industrial production continued to be negatively affected for a long time and consumer prices continued to increase during this period leading to price difficulties. In addition, the money supply and the RMB exchange rate decreased. Due to the shock of rising interest rates, stock indexes have fallen as predicted according to the economic theories. Moreover, because of the shock of rising interest rate, higher money supply, industrial production situation was unexpected before and after the global financial crisis, which led to a positive effect on consumer prices in the short-term. The change of RMB exchange rate was not obvious statistically, but there was a negative effect. During this period, stock indexes was the opposite of expectation. The impact of some macroeconomic variables on monetary policy can be seen as different from predictions based on economic theories and it doesn’t have much statistical significance, indicating the lack of effectiveness and transmission effect of monetary policy. The influence channel and effects of monetary policies are similar to the black box. Inevitably there will be changes in the financial markets and the real economy according to the specific conditions. It also means the influence channel and effects of monetary policy don’t play a vital role. It takes a long time for monetary policies to affect the real economy. Therefore, to maximize the effect of monetary policies, it is essential to determine the current economic situation and implement the policies. Furthermore, it is vital to actively improve the financial market system. Hence, it will be possible to enhance the efficiency of financial resource allocation and enable the financial market to do its roles in structural adjustment and risk prevention.

We examine the nexus between financial inclusion and inflation targeting monetary policy effectiveness in West African Economic and Monetary Union countries by employing a heterogenous panel approach that enables us to delineate the responses to policy innovations related to idiosyncratic country‐specific shocks, common shocks, and composite shocks. We find that these shocks significantly affect inflation and financial inclusion but with varying magnitudes, signs, time of responses, and persistence. We further demonstrate that inflation targeting monetary policy is differently associated with the various dimensions and indicators of financial inclusion. Overall financial inclusion shocks temporarily increase inflation; deposit shocks reduce inflation; and credit shocks increase inflation. Central bank policy rate differently responds across time horizon to overall financial inclusion shocks; and it increases due to credit shocks highlighting that the monetary authority responds to credit shocks by implementing contractionary monetary policy. Our results highlight that monetary policy aimed at promoting inclusive financial services and responses of monetary policy to financial inclusion should be specific to the dimensions of financial inclusion.

The existence of non-inclusive households significantly reduces the effect of the interest rate change policy on households inter-temporal consumption decisions. Further, financial inclusion is closely related to fintech. On the one hand, fintech helps overcome the financial inclusion problem because fintech manages to reach those who were previously inaccessible by banks. On the other hand, fintech will change the payment system structure in an economy that will eventually affect the effectiveness of monetary policy. Using the Vector Error Correction Model (VECM) with the observation period of 2009–2018, this study aims to analyze the effects of financial inclusion and fintech on effectiveness of the Indonesian monetary policy within the framework of the transmission mechanism of monetary policy through interest rate channel with both the cost of capital effect and the substitution effect. The results demonstrate that financial inclusion level affects inflation rate as a proxy of effectiveness of the Indonesian monetary policy, both in the short run and long run. However, the effect of shocks in financial inclusion on inflation is not permanent. Meanwhile, fintech only affects inflation rate in the short run. However, shocks in fintech affect the volatility of inflation rate is permanent both through the substitution effect and the cost of capital effect.

The extent monetary policy is effective in achieving financial inclusion has been scarcely investigated in the literature. Hence, this study examined the extent monetary policy is effective in achieving financial inclusion in Nigeria and whether FinTech improves or impedes this relationship. Quarterly time series data spanning from 2009 to 2019 from the Central Bank of Nigeria were used for estimations. Johansen’s cointegration test and fully modified OLS were used to carry out the analysis. The result shows that measures of monetary policy effectiveness, such as inflation rate and lending rate all had a significant effect on financial inclusion in the country. It was also discovered that accounting for FinTech in the model improves the effectiveness of the monetary policy on financial inclusion in Nigeria, contrary to popular assertion that Fintech impedes monetary policy effectiveness. The study concludes by emphasizing the role of monetary policy in achieving financial inclusion in Nigeria.

Objective: This study investigates the relationship between financial inclusion and monetary policy effectiveness in Vietnam (2004–2024), within the framework of achieving the United Nations Sustainable Development Goals (SDGs), aiming to assess how improved financial access influences inflation and policy transmission. Theoretical Framework: The research draws on monetary transmission theory and a multidimensional financial inclusion framework, encompassing geographic and demographic access, banking services, and digital finance. Method: A Financial Inclusion Index was constructed using Principal Component Analysis across four dimensions. A Vector Error Correction Model (VECM) was employed to analyze long-term and short-term dynamics, with separate estimations for pre-2015, 2015–2019, and 2020–2024 to account for structural changes. Results and Discussion: Findings show that higher financial inclusion reduces inflation and enhances monetary policy transmission. Lending rates are negatively correlated with inflation, while exchange rates show a positive correlation. Digital finance growth post-2015 notably improved transmission mechanisms. Research Implications: Financial inclusion emerges as a critical tool for macroeconomic stability and more effective policy in developing economies, especially amid global volatility. Originality/Value: By applying a multidimensional index and capturing evolving financial structures, the study highlights the evolving role financial inclusion plays in strengthening monetary policy effectiveness in Vietnam's developing economy, particularly during periods of global economic volatility, and its contribution towards fulfilling the SDGs by promoting inclusive and sustainable economic growth.

This study examines the relationship between financial inclusion and monetary policy in nine selected ASEAN (Association of Southeast Asian Nations) countries during 2010-2019. To answer the objective of this study, the Vector Error Correction Model (VECM) is used to analyze the effect of financial inclusion on inflation as a proxy of monetary policy effectiveness. In addition, the causality between financial inclusion and monetary policy is also examined in this study. The data used are panels data and collected through secondary sources. The multidimensional approach of IFI (index of financial inclusion) is constructed to represent a comprehensive financial inclusion measurement. The results showed that financial inclusion had a negative effect on inflation in the long-term and short-term; it indicates that an increase in financial inclusion will lower inflation which eventually increases the effectiveness of monetary policy in Indonesia, Malaysia, Thailand, Philippines, Singapore, Vietnam, Cambodia, Myanmar, and Laos. Moreover, a causality exists between financial inclusion indicators and monetary policy in selected ASEAN countries. This study concludes that financial inclusion through access and usage of financial services improves the efficiency of monetary policy in nine selected ASEAN countries in controlling inflation. This study suggests that monetary authorities must emphasize the link between financial inclusion and monetary policy objectives. Advanced financial inclusion can help policymakers formulate and implement monetary policies contributing to economic stability and sustainable growth.

This study examines financial inclusion in Sub-Saharan Africa, with focus on the role of monetary policy and banks’ pricing behaviour. Using a sample of 330 banks operating in 29 Sub-Saharan African countries, we test the following hypotheses. First, loan price increases when monetary policy is contracted and bank prices reduce when general price level is stable (effective monetary policy). Building on these results and using various specifications of monetary policy and bank pricing strategy, the second test suggests that, high bank pricing in the light of contractionary monetary policy tend to increase financial inclusion, and that high bank pricing reduces financial inclusion when monetary policy is effective. These findings are relevant for policy making regarding improving financial inclusion in SSA.KeywordsBank pricingMonetary policyFinancial inclusionAfrica

ABSTRACT: The purpose of the study is to analyze the relative efficacy of monetary and fiscal policies in fostering economic growth in Bangladesh concerning predictability, speed, and magnitude. Moreover, it aims to find the relationship between the economic boom of Bangladesh and two measures of macroeconomic management i.e., monetary and fiscal policy. The ARDL model and bound test are applied to examine the long-term link between monetary policy, fiscal policy, and economic growth. Data is obtained from the World Development Indicator (WDI) for Bangladesh for the period 1974 to 2022. Several diagnostics tests like CUSUM and CUSUMQ are used to identify both the strengths and weaknesses of the models. The findings demonstrated a long-term correlation between the two policies and economic growth. According to the calculated short-run coefficients, the short-term effect of fiscal policy is mentionable but the effect of monetary policy is negligible in the short term. But over time, the immediate effects become noteworthy. The long-term outcomes indicated that both fiscal and monetary policies have a favorable and substantial long-term impact on economic growth. The result shows fiscal policy is more effective compared to monetary policy for making Bangladesh, a role model of Bangladesh. Furthermore, all the diagnostics tests showed the stability of the estimated ARDL model. Expansionary fiscal and monetary policies lead to higher government spending and an increase in the money supply, which raises GDP levels. Conversely, if government spending and the money supply decline (contractionary fiscal and monetary policies), the GDP level falls. As a result, this study suggests using expansionary policies to boost Bangladesh’s economy.