IMF: Fintech is a GDP booster!
Now you know why Asia is the leader in building CBDCs!
The IMF found that fintech truly is an engine for growth!
This is no joke, and anyone who has read about the GDP boosts claimed by fintech-friendly India (now ~0.9% with an outlook 3-4%) and China (10.0%+) knows how serious this is.
Lest I get readers too excited, the effect is still small and highly variable. The study of over 198 countries between the period 2012 to 2020 showed fintech contributed real GDP per capita growth of 2.2%!
2.2% is nothing to laugh at and is behind Asia’s efforts to lead in the development of CBDC! Let’s look at why!
👉TAKEAWAYS
The mean value of real GDP per capita growth in the countries surveyed is 2.2%!
This is good news but the variance displayed over 198 nations is huge with a minimum of -54 percent to a maximum of 87 percent!
Don’t let these results fool you. Mean 2.2% growth is no laughing matter for nations struggling to add tenths to GDP figures.
What makes these results astounding is that fintech represents tiny fraction of the overall financial system. So small fraction, big impact!
How tiny? In the study group, fintech instruments amount to 0.1 percent of GDP, compared to 55 percent of GDP in domestic credit to the private sector!
The study broke fintech into digital lending and digital capital raising and found that digital lending was the biggest GDP booster.
Digital lending’s impact is 0.1 percent of GDP with a minimum of nil and a maximum of 3.4 percent. Corrected data table 3, shows a 1 percent boost.
Digital capital raising didn’t provide the boost that lending did with GDP ranges from a minimum of nil to a maximum of 0.5 percent.
It’s all about the loans, but too many loans can destabilize an economy as China showed with P2P lending!
While the means of these numbers are significant, the variance is huge. Look at the Minimum and Maximum columns. For both extremes there were other factors involved beyond fintech.
👊STRAIGHT TALK👊
Fintech’s GDP boost is all about lending!
The research shows that the impact of fintech on GDP depends heavily on whether the fintech is being used to lend or for capital raising, with lending bringing the majority of the boost.
This overall impact of fintech is positive in the research because the majority of fintech is lending. This relationship also holds in data corrected for lags and other factors.
So if nations want to boost their GDP, they must increase fintech lending, right?
Not so fast! China’s experience with large-scale lending through P2P loans caused social unrest and a market crash. India also had real issues with loans during its early days with loans using the UPI payment system.
So, prudence with loans is necessary.
The good news is that this study shows that financial innovation promotes economic growth by increasing intermediation.
Fintech is still tiny compared to incumbents, and if it can turn out 2.2% GDP growth now, imagine what it will do as it grows.
That is where it gets exciting.
Relation to CBDC
One final thought on CBDC.
Asia’s fintech leaders fully appreciate the connection between fintech and GDP growth! They’ve lived it.
This is why China and India, among many other Asian neighbors, are all building CBDC!
Asian nations see CBDC as a GDP booster, and given the positive impact fintech has had to date, the question isn’t why they’d want a CBDC but why wouldn’t they?
The West, however, has the exact opposite opinion!
Thoughts?
Hey got anything to say about this article? I and others in our “Cashless” community would love to hear it!
Don’t pull your punches. Tell me why I’m right or wrong, but don’t miss this opportunity to leave a comment!
A big thank you to all my subscribers! I appreciate your notes telling me how much you enjoy reading this newsletter!
Join the community by subscribing! You’ll be glad you did!
