FintekNews Friends, we saw that IMF Managing Director Christine Lagarde addressed a major financial forum in Beijing on Sunday, hosted by the People's Bank of China and the Chinese Ministry of Finance, and we had to share this with our readers in its entirety. In the speech, she made reference to fintech as a "policy priority" and specifically mentioned mobile banking, cross-border payments and virtual currencies. Clearly fintech, in all its varying manifestations, is shaping the future of finance globally, and this speech only confirmed that.
(Cindy Taylor/Publisher)
Belt and Road Initiative: Strengthening Financial Connectivity
By Christine Lagarde, IMF Managing Director
Belt and Road Forum, Beijing
May 14, 2017
Governor Zhou, Minister Xiao, Distinguished Guests, Ladies and Gentlemen—good afternoon!
I would like to thank the People’s Bank of China and the Chinese Ministry of Finance for hosting this important discussion on financial connectivity.
Harnessing the resources of governments, investors, financial institutions, and ordinary citizens requires a financial system that works forall
. This objective lies at the heart of theBelt and Road Initiative
.How can governments achieve this common goal? Let me highlight three policy priorities:
First, step up efforts to attract foreign direct investment
in high-quality infrastructure. The good news is that there is a large pool of institutional funds—about $120 trillion in global assets under management. [1] But only a tiny fraction of that is allocated to infrastructure in developing countries, where projects are often seen as too risky. Last year, emerging and developing countries received net foreign direct investment inflows of less than1 percent
of their combined GDP, down from2 percent
before the 2008 financial crisis. [2] These countries can reinvigorate FDI inflows by pursuing sound macroeconomic policies, by increasing their openness to trade, and by improving their business and regulatory environment. [3]The second policy priority is to push for more financial inclusion
, especially in developing economies. Think of the small businesses that are held back by a lack of credit. And think of the billions of women who have yet to achieve their full economic potential. By expanding their access to financial services—by sharing the benefits of finance more widely—growth will be stronger, more durable, and more inclusive. Recent IMF analysis [4] shows a2-to-3 percentage
point difference in economic growth between financially inclusive countries and their less inclusive peers.The third policy priority is to harness the power of financial technology, or fintech
. A good example is the rapid growth of mobile banking, which has boosted the economic wellbeing of hundreds of millions of citizens—from Bangladesh, to Kenya, to Peru. Here in China—in cities like Beijing and Hangzhou—people can live without cash by using online payment platform such as Alipay and Wechat. Another example is the rapid increase incross-border payments
based onvirtual currencies
. For many companies and households, this is a faster and cheaper way of transferring money overseas.These benefits are significant—but so are the challenges, including the risk of money laundering and terrorist financing. Fintech providers, financial regulators, central bankers, and international organizations will need to work together to ensure that financial systems are safe and inclusive.
More broadly, IMF analysis [5] shows that having a more inclusive financial system makes itsafer—and more beneficial—to relax restrictions on capital flows across borders
. By liberalizing their capital account over time, countries can attract more foreign investment, increase the liquidity of local financial markets, and reduce their cost of capital.In other words, by developing deep, well-regulated financial markets, countries can better mobilize domestic and international resources for investment—while reducing the financial stability risks that come with large capital inflows.
The IMF has shown over many decades that it can help in this effort—by providing policy advice and technical assistance in key areas—from debt sustainability, to macroprudential policy, to managing capital flow volatility in times of distress.