2021-05-31-UNDP-Bigfintechs_and_their_impacts_on_macroeconomic_policies_17页_797kb

Summary of Technical Paper 1.1B: BigFintechs and their Impacts on Macroeconomic Policies

Core Content

This paper, part of the Dialogue on Global Digital Finance Governance, extends the analysis from Technical Paper 1.1 on the impacts of BigFintechs (BFTs) on sustainable development, with a specific focus on least developed countries (LDCs). It explores the macroeconomic implications of BFT activities, particularly their influence on SDG 16 (Peace, Justice and Strong Institutions), and identifies regulatory challenges and governance gaps that hinder effective oversight.

Main Points

• BFTs operate within the digital economy, offering financial and non-financial services through digital platforms, which can have both positive and negative macroeconomic impacts on LDCs.
• The positive impacts include:
  • Reducing inequalities
  • Improving access to capital
  • Boosting employment and entrepreneurship
  • Promoting GDP growth
• The negative implications include:
  • Potential tax avoidance
  • Crowding out local businesses and SMEs
  • Evolving ecosystems with single points of failure
  • Draining liquidity from local financial systems
  • Currency substitution
  • Shadow banking risks, which may bypass national taxation and regulation

Key Challenges

• Regulatory limitations: Current frameworks and tools for measuring macroeconomic impacts of BFTs are not well-suited for LDCs, often ignoring the unique economic structures and informal sectors.
• Data availability: LDCs face data gaps, especially in areas such as informal lending, household income, and Internet usage, which are crucial for understanding BFT impacts.
• Fragmented governance: LDCs are often excluded from the regulatory processes of BFTs, despite being the most affected by their operations.
• Cross-border nature: BFTs operate across borders, creating regulatory complexity due to mismatched classification systems for taxation, foreign exchange, and digital services.

OECD's Tiered Definition of the Digital Economy

The paper references the OECD's tiered framework for measuring the digital economy, which includes:

1. Core: Economic activity from producers of ICT goods and digital services.
2. Narrow: Core plus activity reliant on digital inputs.
3. Broad: Core and narrow plus activity significantly enhanced by digital inputs.
4. Final: Extends beyond the digital economy, including digitalized interactions not captured in GDP.
5. Additional: All activity that is digitally ordered or delivered.

This framework is intended to enhance measurement accuracy and comparability, but it is still skewed toward G20 and OECD countries, excluding many LDCs.

SDG 16 and Macroeconomic Impacts

The paper emphasizes the importance of SDG 16 in understanding the macroeconomic impacts of BFTs, including:

• Currency stability
• Investor confidence
• Public financial management
• Efficient and targeted public spending
• Infrastructure investment
• Debt sustainability
• Access to financial markets

It argues that while the digital economy is often seen as a positive force, the complex and opaque business models of BFTs can lead to unintended macroeconomic consequences in LDCs.

Recommendations

The paper concludes with several key recommendations:

• Alternative incentives and tools for BFTs to report and address their impacts in LDCs.
• Innovative regulatory approaches to better measure, analyze, and remediate the risks and impacts of BFTs on LDCs.
• Inclusive governance frameworks that involve LDCs in shaping the policies and regulations affecting them.

Conclusion

BFTs have the potential to transform economies, but their complexity and cross-border operations pose significant regulatory and policy challenges, especially in LDCs. The paper calls for a broader and more inclusive approach to digital finance governance, one that considers the SDG impacts and macroeconomic consequences of BFT activities, rather than focusing solely on financial stability and consumer protection.

Key Authors

• Katherine Foster: Executive Strategy Officer, Open Earth Foundation (USA); Member of ESMA Financial Innovation Standing Committee Consultative Working Group and EU Blockchain Observatory.
• Sofie Blakstad: CEO, hiveonline; author of Fintech Revolution: Universal Inclusion in the New Financial Ecosystem.
• Sangita Gazi: Research Fellow, Asian Institute of International Financial Law (AIIFL), University of Hong Kong (HKU); PhD researcher at HKU on CBDC and monetary policy in emerging economies.
• Martijn Bos: Financial Technology & Financial Inclusion Consultant; co-author of The European Fintech Landscape in Green Digital Finance.

Document Context

• The Dialogue on Global Digital Finance Governance is hosted by the Swiss and Kenyan Governments and stewarded by UNDP and UNCDF.
• The paper is part of a series of Technical Papers developed by commanding experts and peer-reviewed by leading institutions.
• The paper builds on the foundational analysis from Technical Paper 1.1, which explored the broader impacts of BFTs on the SDGs.

Conclusion

The paper highlights the need for a more holistic and inclusive approach to digital finance governance, particularly for LDCs, which are often neglected in the current regulatory and policy landscape. It underscores the importance of SDG 16 in assessing the macroeconomic effects of BFTs and suggests that alternative tools and incentives should be considered to measure and address their impacts in developing economies.