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on Financial Development and Growth |
| By: | Hadi Cissé (Université Sorbonne Paris Nord) |
| Abstract: | This master thesis examines how commercial banking behaviors, specifically conservative and selective credit practices, affect macroeconomic recovery in developing countries, using Côte d'Ivoire and Niger as case studies within the WAEMU region. Its originality lies in embedding behavioral assumptions into a stock-flow consistent (SFC) model calibrated to each country's structural characteristics. Through dynamic simulations, the study shows that conservative lending deepens recessions by restricting credit access, while selective lending, though less destabilizing, constrains inclusive growth through allocative bias. Statistical validation confirms these dynamics, highlighting that banking behavior critically shapes investment, employment, and GDP recovery. The findings offer policy insights for reforming credit allocation mechanisms to strengthen macro-financial resilience in WAEMU economies. |
| Abstract: | Ce mémoire de master 2 analyse l'impact des comportements bancaires, en particulier le crédit conservateur et l'allocation sélective, sur la reprise macroéconomique dans les pays en développement, à travers les cas de la Côte d'Ivoire et du Niger, membres de l'UEMOA. L'originalité de l'étude réside dans l'intégration d'hypothèses comportementales dans un modèle stock-flux cohérent (SFC), calibré selon les spécificités structurelles de chaque pays. Les simulations dynamiques montrent que le crédit conservateur aggrave les crises en rationnant l'investissement, tandis que le crédit sélectif freine une reprise inclusive en biaisant l'allocation sectorielle. La validation statistique renforce ces résultats, soulignant que le comportement bancaire joue un rôle déterminant dans la dynamique de l'investissement, de l'emploi et du PIB. Ces conclusions appellent à repenser les mécanismes d'allocation du crédit dans une perspective de résilience macro-financière au sein de l'UEMOA. |
| Keywords: | Commercial banking behavior Credit rationing Selective lending Stock-flow consistent modeling Investment dynamics Employment recovery WAEMU Côte d'Ivoire Niger Financial fragility E12, E44, E51, O55, Commercial banking behavior, Credit rationing, Selective lending, Stock-flow consistent modeling, Investment dynamics, Employment recovery, WAEMU, Côte d'Ivoire, Niger, Financial fragility E12 |
| Date: | 2025–06–16 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05115536 |
| By: | Miguel D. Ramirez (Department of Economics, Trinity College) |
| Keywords: | Convergence; Economic Growth;Foreign Direct Investment (FDI);Net Reverse Flows; and Remittances Capital. |
| JEL: | O40 O50 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:tri:wpaper:2503 |
| By: | Yoshiki Ando |
| Abstract: | Motivated by the substantial growth and upfront investments of venture capital (VC) backed firms observed in administrative US Census data, this paper develops a firm dynamics model over the life cycle. In the model, startups choose the source of financing from VC, Angel investors, or banks, depending on their growth potential, and invest in innovation. The calibrated model explains the life-cycle dynamics of firms with different sources of financing and implies that venture capitalists’ advice accounts for around 22% of the growth of VC-backed firms. A counterfactual economy without VC financing would lose aggregate consumption by around 0.4%. |
| Keywords: | Venture capital, firm dynamics, innovation, upfront investment, defaultable debt, endogenous sorting |
| JEL: | D22 D25 E22 G24 G30 O32 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:cen:wpaper:25-38 |
| By: | Hajar Rachdi (Université Mohammed V de Rabat); El Batoule Baryala (Université Mohammed V de Rabat) |
| Abstract: | Abstract: Foreign Direct Investment (FDI) flows in Morocco have been subject to fluctuations, influenced by the country's economic and political conditions. These fluctuations have had varying impacts on different sectors of the economy. Moroccan policies and incentives have aimed to create favorable conditions to attract multinational corporations and stimulate sectoral growth, leading to an increasing number of companies establishing themselves in Morocco. The study's central question is the role of local economic development in attracting FDI. Rather than focusing on the best relocation strategies for companies, the study aims to identify factors that make countries, particularly Morocco, attractive to foreign investment. To address this question, the study will employ an econometric approach, specifically multiple linear regression, to analyze the impact of various economic variables on inward FDI flows in Morocco. The analysis will be based on Moroccan data spanning from 1990 to 2022. The results indicate that while investment levels have a positive but statistically insignificant effect on foreign investment, economic growth, particularly its lagged effect, is an important factor in short-term foreign investment flows. Conversely, the openness index has a negative but insignificant relationship with FDI. These results highlight the central role of sustained economic growth in attracting Foreign Direct Investment and suggest that Moroccan policymakers should prioritize growth-oriented strategies to enhance the country's investment attractiveness and improve the long-term effectiveness of FDI. Keywords: Foreign Direct Investment, Local Economic Development, Auto Regressive Distributed Lag. |
| Keywords: | Foreign Direct Investment, Local Economic Development, Auto Regressive Distributed Lag., African Scientific Journal, Foreign Direct Investment Local Economic Development Auto Regressive Distributed Lag, Auto Regressive Distributed Lag |
| Date: | 2025–06–30 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05090962 |
| By: | Cody Kallen |
| Abstract: | Rising geopolitical tensions and supply chain vulnerabilities have driven recent fragmentation of foreign direct investment (FDI). This paper provides systematic evidence of FDI fragmentation along ideological and geographic lines across five dimensions: shifting away from ideologically distant countries (ideological sorting), prioritizing politically aligned countries (friendshoring), reducing exposure to specific high-risk countries (derisking), moving production closer to the home country (nearshoring), and returning investment to the home country (reshoring). Measures of FDI based on financial transactions reveal evidence of ideological sorting and nearshoring. The capital expenditures of multinational enterprises and their affiliates display ideological sorting, derisking, nearshoring, and reshoring. Cross-border M&A deals reflect patterns of derisking, while horizontal (but not vertical) M&A exhibits broader ideological realignment. At the industry level, derisking and ideological sorting appear widely distributed. By contrast, friendshoring and nearshoring of M&A remain concentrated in goods-producing sectors. |
| Keywords: | Fragmentation; Geoeconomics; Foreign direct investment |
| JEL: | F21 F23 F36 F50 F65 |
| Date: | 2025–07–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgif:1413 |
| By: | Xiaoxue Zhao (Department of Economics, Wesleyan University); Abigail S. Hornstein (Department of Economics, Wesleyan University) |
| Abstract: | China’s 2001 stock market reform ended the administrative quota system for public listings, which had favored provinces with more state-owned firms. This reform led to a significant leveling of firms’ probability of listing across provinces. Firms that got a higher boost in their listing probability increased assets and investments and reduced financial costs and marginal revenue product of capital. Thus, this reform significantly improved capital allocation efficiency, even among unlisted firms. We identify equity market liberalization as a key institutional lever that drives reduced capital misallocation and thus contribute to debates on financial development and economic efficiency in emerging markets. |
| JEL: | O16 O12 G23 G38 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:wes:weswpa:2025-007 |
| By: | Nuobu Renzhi (Capital University of Economics and Business); John Beirne (Asian Development Bank) |
| Abstract: | This paper examines the impact of monetary policy shocks on firm-level productivity across 32 emerging market economies from 2000 to 2023, using panel local projections and a comprehensive firm-level dataset. We identify exogenous monetary policy shocks using a forward-looking Taylor rule and analyze their dynamic impact on total factor productivity. The results indicate a significant and persistent decline in productivity following a monetary-tightening shock. Crucially, financial frictions drive heterogeneous responses among firms: firms facing higher financial frictions experience more severe and prolonged productivity losses, whereas those with lower frictions recover more quickly. Additionally, firms characterized by low market power, younger age, or operation in financially vulnerable sectors, such as services, experience larger and longer-lasting productivity losses compared to their counterparts. Furthermore, we find asymmetric effects, whereby contractionary monetary shocks result in substantial productivity losses, while expansionary shocks fail to generate offsetting gains. |
| Keywords: | productivity;monetary policy;emerging markets |
| JEL: | D22 D24 E52 |
| Date: | 2025–07–18 |
| URL: | https://d.repec.org/n?u=RePEc:ris:adbewp:021408 |
| By: | Kim, Dohan |
| Abstract: | One defining feature of financial crises, evident in U.S. and international data, is asymmetric bank distress—concentrated losses on a subset of banks. This paper proposes a model in which shocks to borrowers’ productivity dispersion lead to asymmetric bank losses. The framework exhibits a “bank distress amplifier, ” exacerbating economic downturns by causing costly bank failures and raising uncertainty about the solvency of banks, thereby pushing banks to deleverage. Quantitative analysis shows that the bank distress amplifier doubles investment decline and increases the spread by 2.5 times during the Great Recession compared to a standard financial accelerator model. The mechanism helps explain how a seemingly small shock can sometimes trigger a large crisis. |
| Date: | 2025–07–10 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11170 |
| By: | Tarik Alperen Er; Burak Deniz; Ibrahim Yarba |
| Abstract: | This paper investigates the firm heterogeneity in the evolution of loan spreads over the credit cycle in Türkiye. Using the combination of credit registry and administrative datasets, our bankfirm level analysis shows that small- and medium-sized enterprises (SMEs) and firms that are riskier and more prone to financial frictions pay higher loan interest rates. The results also reveal that loan spreads of these firms decrease and converge to the spreads of large and financially sound firms during expansion periods. Our firm-level analysis indicates that these findings persist at the firm level. Our results suggest that SME loan spreads rise more than those of larger firms during tightening periods. This reveals the asymmetric deterioration in SMEs’ lending conditions relative to large firms. On the other hand, the significant role of firm riskiness on loan spreads weakens during expansion periods. However, these findings are valid only for loans extended by private banks but not state-owned banks. Our findings lend support to policy makers’ prudent approaches over the credit cycle. |
| Keywords: | Loan Spreads, Credit Cycle, SMEs, State-Owned Banks |
| JEL: | E32 E5 G21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:tcb:wpaper:2510 |
| By: | Fuchs, Andreas; Siewers, Samuel |
| Abstract: | Timely assistance is a precondition for effective emergency relief in the aftermath of natural disasters. This paper shows that donor countries take faster aid decisions if they have stronger strategic interests at stake. We analyze a trilateral panel (donor, donor, recipient) of daily humanitarian aid decisions of 43 donor countries following 516 fast-onset natural disasters between 2000 and 2022. Identification relies on daily variation in donor responses and a series of multidimensional fixed effects. Our analysis reveals a bandwagon effect as donors follow their peers' commitments. This is largely explained by trade competition: the more donors compete over export and import markets, the faster they react to each other. The results are driven by government-to-government aid and underscore the importance of recipient-specific lead donors, who are natural first movers. These findings suggest that commercial competition can distort emergency relief and highlight that strategic interests shape even ostensibly altruistic behavior in international humanitarian aid. |
| Keywords: | humanitarian assistance, disaster relief, aid speed, donor competition, United Nations, emergency appeals, trade competition |
| JEL: | F35 F42 F53 H12 H84 O19 Q54 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkwp:320426 |
| By: | Sterc, Olivier |
| Abstract: | Delays in aid delivery are common, yet their impacts on households and markets remain theoretically ambiguous and empirically understudied. The Permanent Income Hypothesis predicts consumption smoothing, while models with financial constraints or present bias predict sharp consumption declines. We test these pre¬dictions using high-frequency data and random interview timing in a large refugee camp in Kenya. While households smooth consumption under regular aid cycles, delays reduce food consumption and well-being, with downstream effects on in-tertemporal preferences and cognitive function. Local prices respond to aid timing, and credit access mitigates impacts, but at a 17% premium. Results support credit constraint models. |
| Keywords: | Cash transfers; Consumption smoothing; Permanent Income Hypothesis; Humanitarian assistance; Delays |
| JEL: | D50 I38 O12 O19 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:csa:wpaper:2025-08 |
| By: | Chaudhry, Suparna; Heiss, Andrew (Georgia State University) |
| Abstract: | Foreign donors routinely use nongovernmental organizations (NGOs) to deliver aid abroad. However, recent decades have witnessed a global cascade of restrictive anti-NGO legislation. How have foreign aid donors responded and adapted to this legal crackdown on NGOs? Using original data from all countries that received aid from 1981–2012, we assess the impact of anti-NGO laws on total flows of official foreign aid, the nature of projects funded, and the channels used for distributing this aid. Overall, we find that donors scale back their operations in repressive countries. However, rather than completely withdraw, we also find that donors redirect funds within restrictive countries by decreasing funds for politically sensitive issues in favor of regime-compatible causes. Donors also channel more aid through domestic rather than foreign NGOs; however, this change is by no means a perfect substitute. We conclude by discussing the implications of our findings for official aid donors, INGOs, and local groups working on contentious causes such as elections, human rights, media, corruption, and advocacy. |
| Date: | 2025–06–25 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:mcgdn_v1 |
| By: | Martin Wolf; Luca Fornaro |
| Abstract: | We study public debt sustainability in an economy with endogenous productivity growth. Our model has two key features: i) financing large primary surpluses entails fiscal distortions that depress investment and growth, ii) low growth increases the primary surpluses needed to stabilize the public debt-to-GDP ratio. Negative shocks to fundamentals or pessimistic animal spirits may drive the economy into a state of fiscal stagnation, characterized by high public debt, large fiscal distortions and low productivity growth. We discuss policy options to avoid/escape fiscal stagnation. |
| Keywords: | investment, fiscal policy, public policy, Endogenous Productivity Growth, Stagnation |
| JEL: | E22 E62 H63 O40 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1488 |
| By: | Esquivel, Carlos; Samano Penaloza, Agustin |
| Abstract: | This paper develops a sovereign default model with capital accumulation, long-term debt, and fiscal rules with two distortions: debt dilution and private underinvestment. Fiscal rules generate a long-run economic expansion because they mitigate default risk caused by dilution, which increases capital accumulation. In the short run, however, the economy goes through a costly transition where consumption and investment drop to finance debt reduction. These dynamic trade-offs are quantified, and the welfare gains of fiscal rules are computed using a calibration for Argentina. A debt limit of 44 percent of gross domestic product attains the maximal welfare gain of 0.5 percent. Implementation of the debt limit generates short-lived drops in consumption and investment of 5 and 7 percent, respectively, and a long-run gross domestic product expansion of 1.4 percent. The paper relaxes the assumption of commitment to the rule and discusses how the threat of exclusion from implementing future rules provides enough incentives to avoid deviations. Welfare gains more than double in this case. |
| Date: | 2025–06–26 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11156 |
| By: | Gelpern, Anna; Haddad, Omar; Horn, Sebastian; Kintzinger, Paulina; Parks, Bradley; Trebesch, Christoph |
| Abstract: | This paper is the first comprehensive analysis of the secured lending practices of Chinese creditors in emerging market and developing economies (EMDEs). We present a new dataset and detailed case studies of collateralized public and publicly guaranteed (PPG) loans from Chinese state-owned institutions in EMDEs between 2000 and 2021. Almost half of China's total PPG loan portfolio to EMDEs is effectively collateralized - amounting to $420 billion in collateralized debt across 57 countries. We document that Chinese lenders use techniques adapted from export and project finance to build multi-layered legal safety nets, which help ensure that risky EMDE loans will be repaid. As security, they use liquid, easily accessible assets, such as cash in bank accounts located in China. They rarely take infrastructure project assets as collateral, but often rely for repayment on established commodity revenue streams unrelated to the project. Typically, EMDE governments and state-owned enterprises commit to route foreign currency proceeds from commodity sales through bank accounts controlled by the lender. The cash balances in these accounts can be very large; in low-income, commodity-exporting countries, they average more than 20% of annual PPG debt service to all external creditors. The same revenue source can secure multiple successive borrowings over many years. Our findings reveal a previously undocumented pattern of revenue ring-fencing, where a significant share of commodity export receipts never reaches the exporting countries. Revenues routed overseas secure priority repayment for the creditor; they remain out of public sight and largely beyond the borrower's reach until the secured debts are repaid. These findings raise new concerns about debt transparency, fiscal management, fiscal autonomy, and the quality of macroeconomic surveillance, particularly in commodity-exporting EMDEs. |
| Keywords: | China, collateral, sovereign debt and default, lending, Belt and Road Initiative |
| JEL: | F34 G15 H63 H81 K12 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkwp:320424 |
| By: | Berger, Allen; Gao, Haoyu; Li, Xinming; Peng, Yuchao; Xie, Bingyuan |
| Abstract: | We explore the limits of organizational expansion in the financial sector, highlighting how branch network growth impacts bank performance. Employing data from small and medium banks in China, we reveal that branch expansion at breakneck speed results in poor performance. We identify agency problems arising from poor governance, hindered information collecting, and heightened moral hazard that can intensify the costs associated with rapid growth. Our findings emphasize the dangers of ambitious expansion, offering critical insights for policymakers and bankers in managing the intertwined challenges of agency costs and the pace of growth, suggesting more balanced future bank branching strategies. |
| Keywords: | Banking, Branching, Agency Problems, Governance, Performance, Risk |
| JEL: | G21 G30 L10 |
| Date: | 2025–07–02 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125305 |
| By: | Pelizzon, Loriana; Mattiello, Riccardo; Schlegel, Jonas |
| Abstract: | This paper examines the rise of non-bank financial intermediaries (NBFIs) and its implications for financial stability and monetary policy transmission in the Euro Area and the United States. While the U.S. financial system has long been market-based, the Euro Area has experienced a striking expansion of NBFIs, which now account for a larger share of GDP than in the U.S. While the sector has grown significantly, much of its capital is intermediated and allocated outside the EU, reflecting missed opportunities for domestic capital market development. We argue that this pattern is a consequence of limited growth opportunities within Europe, weak financial market infrastructure, and the absence of key institutional enablers such as a sizable capital market and securitization frameworks. We further examine how NBFIs pose supervisory challenges due to geographic concentration, influence money market dynamics, and interact with monetary policy transmission. The paper concludes with policy recommendations to unlock the sector's potential - including reforms to deepen European capital markets, a unified supervisory mechanism and consideration of extending some central bank facilities to NBFIs. |
| Keywords: | Non-bank Financial Intermediaries (NBFIs), Monetary Policy Transmission, European Capital Markets |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewh:321877 |
| By: | Myles, Jamieson |
| Abstract: | Financial technology (fintech) innovations have the potential to disrupt traditional banking by unbundling banking, money, and payments. However, the impact on the cross-border payments system—which still relies on correspondent banking networks—remains uncertain. This uncertainty partly stems from a historical focus in the literature on cash clearing over credit. Challenging this distinction, this article explores the role of credit in correspondent banking and international payments. A longue durée perspective on cashless payments reveals the deep-rooted importance of credit in the cross-border payment system and highlights correspondent banks’ role in providing it. Changes in bank-intermediated trade finance practices during and after World War I reshaped the London-based correspondent banking network. Furthermore, cash clearing and credit operations remained remarkably congruent until at least the 1980s, as reflected in banks’ internal organisation, reporting, and bankers’ own descriptions of the payment system. This article argues that adopting a definition of payment system infrastructure that integrates both dimensions is essential to understanding how correspondent banking has facilitated international liquidity provision. It also suggests that relying on fintech firms, rather than banks, to provide this elastic payment infrastructure could amount to jumping out of the frying pan and into the fire. |
| Keywords: | Correspondent banking, Payment systems, Infrastructure, Banking history |
| JEL: | N00 N10 N20 B52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:gnv:wpaper:unige:186604 |
| By: | International Monetary Fund |
| Abstract: | 2025 Selected Issues |
| Date: | 2025–07–16 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfscr:2025/193 |
| By: | Khalid Lahrour (UH2C - Université Hassan II de Casablanca = University of Hassan II Casablanca = جامعة الحسن الثاني (ar)); Latifa Horr (UH2C - Université Hassan II de Casablanca = University of Hassan II Casablanca = جامعة الحسن الثاني (ar)) |
| Abstract: | Financial inclusion refers to providing financial products and services to households and small businesses that were previously excluded, as a means of promoting more inclusive growth. This includes access to savings, investment, consumption smoothing, and insurance. Fintech is the use of software, applications, and digital platforms to provide financial services to consumers and businesses through digital devices like smartphones. It has gained recognition as a promising way to promote financial inclusion. This paper examines the impact of financial technology (fintech) on financial inclusion through a literature review following the Preferred Reporting Items for Systematic Reviews and Meta-Analysis (PRISMA) to identify the ways in which fintech contributes to and can potentially contribute to increased financial inclusion. The paper provides a brief history of fintech, reviews the literature on fintech and financial inclusion, and discusses how fintech can increase access to financial services, promote financial literacy and consumer protection, and support the growth of micro and small enterprises. The paper concludes with empirical evidence on the impact of fintech on financial inclusion. |
| Keywords: | Fintech Financial inclusion Digital finance Innovation Systematic review. Classification JEL: G23 Paper type: Theoretical Research, Fintech, Financial inclusion, Digital finance, Innovation, Systematic review |
| Date: | 2025–05–31 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05137071 |
| By: | Sabrina Aufiero; Antonio Briola; Tesfaye Salarin; Fabio Caccioli; Silvia Bartolucci; Tomaso Aste |
| Abstract: | This paper investigates the evolving link between cryptocurrency and equity markets in the context of the recent wave of corporate Bitcoin (BTC) treasury strategies. We assemble a dataset of 39 publicly listed firms holding BTC, from their first acquisition through April 2025. Using daily logarithmic returns, we first document significant positive co-movements via Pearson correlations and single factor model regressions, discovering an average BTC beta of 0.62, and isolating 12 companies, including Strategy (formerly MicroStrategy, MSTR), exhibiting a beta exceeding 1. We then classify firms into three groups reflecting their exposure to BTC, liquidity, and return co-movements. We use transfer entropy (TE) to capture the direction of information flow over time. Transfer entropy analysis consistently identifies BTC as the dominant information driver, with brief, announcement-driven feedback from stocks to BTC during major financial events. Our results highlight the critical need for dynamic hedging ratios that adapt to shifting information flows. These findings provide important insights for investors and managers regarding risk management and portfolio diversification in a period of growing integration of digital assets into corporate treasuries. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.14655 |
| By: | Lennart Ante; Aman Saggu; Ingo Fiedler |
| Abstract: | Stablecoins represent a critical bridge between cryptocurrency and traditional finance, with Tether (USDT) dominating the sector as the largest stablecoin by market capitalization. By Q1 2025, Tether directly held approximately $98.5 billion in U.S. Treasury bills, representing 1.6% of all outstanding Treasury bills, making it one of the largest non-sovereign buyers in this crucial asset class, on par with nation-state-level investors. This paper investigates how Tether's market share of U.S. Treasury bills influences corresponding yields. The baseline semi-log time trend model finds that a 1% increase in Tether's market share is associated with a 1-month yield reduction of 3.8%, corresponding to 14-16 basis points. However, threshold regression analysis reveals a critical market share threshold of 0.973%, above which the yield impact intensifies significantly. In this high regime, a 1% market share increase reduces 1-month yields by 6.3%. At the end of Q1 2025, Tether's market share placed it firmly within this high-impact regime, reducing 1-month yields by around 24 basis points relative to a counterfactual. In absolute terms, Tether's demand for Treasury Bills equates to roughly $15 billion in annual interest savings for the U.S. government. Aligning with theories of liquidity saturation and nonlinear price impact, these results highlight that stablecoin demand can reduce sovereign funding costs and provide a potential buffer against market shocks. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.12413 |
| By: | Hongzhe Wen; Songbai Li |
| Abstract: | With market capitalization exceeding USD 200 billion as of early 2025, stablecoins have evolved from a crypto-focused innovation into a vital component of the global monetary structure. This paper identifies the characteristics of stablecoins from an analytical perspective and investigates the role of stablecoins in forming hybrid monetary ecosystems where public (fiat, CBDC) and private (USDC, USDT, DAI) monies coexist. Through econometric analysis with multiple models, we find that stablecoins maintain strong peg stability, while each type also exhibiting distinctive responses to market variables such as trading volume and capitalization, depending on the mechanisms behind. We introduce a hybrid system design that proposes a two-layer structure where private stablecoin issuers are backed by central bank reserves, ensuring uniformity, security, and programmability. This model merges the advantages of decentralized finance and payment innovation while utilizing the Federal Reserve's institutional trust. A case study on the 2023 SVB-USDC depeg event illustrates how such a hybrid system could prevent panic-induced instability through transparent reserves, secured liquidity, and interoperable assets. Ultimately, this research concludes that a hybrid monetary model not only enhances financial inclusivity, scalability, and dollar utility in digital ecosystems but also strengthens systemic resilience, offering a credible blueprint for future digital dollar architectures. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.10997 |