Governance of digital money for financial inclusion : credit, information, and infrastructure

Abstract

This thesis investigates the governance of digital money with the aim of achieving financial inclusion. It begins by examining the problem of financial exclusion from three perspectives: (1) limited access to banking and payment systems, including individuals and groups without bank accounts or adequate ownership of financial accounts (the 'infrastructure' aspect); (2) restricted access to credit and affordable loans for essential needs such as education, healthcare, and social security (the 'credit' aspect); and (3) insufficient knowledge and oversight of money creation and operations, including aspects such as quantity and distribution (the 'information' aspect). These three aspects are interconnected and require attention to fulfill diverse human needs and societal objectives. The thesis explores the potential and limitations of digital money in addressing all three aspects of financial inclusion and assesses the role of law in facilitating this process.

The thesis first analyzes the governance implications of digital money as a public utility. Digital money serves as a platform for various private, public, and social activities. Laws and regulations are necessary to safeguard users and promote fair treatment, particularly in relation to the concentration of market power. Mechanisms such as fee rate regulation, universal service requirements, and open standards and interoperability are proposed to achieve these objectives. Central Bank Digital Currencies (CBDCs) are examined as a means for central banks to facilitate digital access, exert monetary control, and influence spending patterns. The legal framework governing CBDCs should outline central banks' objectives, duties, and decision-making procedures. Policy transparency, regular communication, and user control over funds are crucial for democratic oversight.

Data plays a pivotal role in enhancing risk assessment for credit extension, contributing to financial inclusion. Through comprehensive data collection, sharing, and transparency, financial institutions can make more informed decisions while ensuring public oversight. Central banks and financial institutions need to establish policies and practices to ensure privacy protection. Responsible data sharing and collaboration among stakeholders are crucial for financial inclusion and democracy. Individuals should have access to their financial data and the ability to transfer it between institutions. Open banking efforts and standardized data formats can make data portability easier, allowing people to switch providers and access a broader choice of financial services. Transparent consent methods should be implemented to allow individuals to understand and manage their personal information use. Meanwhile, robust privacy preserving technologies and procedures are needed to protect sensitive personal information, including encryption, access limits, and periodic security reviews.

Fair credit allocation surpasses conventional monetary governance by recognizing that profitability alone is not sufficient to determine credit extension. It involves evaluating the social impact, strategic importance, and broader benefits associated with providing credit to individuals and sectors. Industry sectors with strategic importance but limited business value, such as green industry and social security for vulnerable groups, may require financial support even if their profitability is not immediately apparent. Fair credit allocation recognizes the intrinsic value of these sectors and aims to provide them with necessary resources to thrive. Alternative approaches, including fiscal tools and programmable money, can facilitate targeted support for specific groups or industries, ensuring a fair and equitable allocation of credit that goes beyond conventional monetary policy tools.