Digitalni repozitorijum
Univerziteta u Beogradu
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THE IMPACT OF DIGITAL CURRENCIES AND FINANCIAL INNOVATIONS ON THE CASHLESS INITIATIVE STRATEGY IN SERBIA
Božović, Miloš
EXECUTIVE SUMMARY This study analyzes the potential impact of introducing digital currencies on the cashless initiative in Serbia. It entails opportunities and threats associated with the proliferation of digital currencies globally. It discusses the economic and institutional conditions required for using digital currencies in daily transactions. A cashless society is a state in which digital forms of payment replace or significantly reduce the use of physical cash in everyday transactions. Digital payment platforms, fintech innovations and emerging technologies such as blockchain have spurred this transformation. We use the World Bank’s Global Findex Database 2021 to construct the cashlessness score. The score is calibrated as a number between 0 and 100, quantifying the extent of cashless adoption in an economy in a given year. The score differs across the World Bank income groups, with upper-income European, North American and East Asian countries being in front of the rest of the world in the cashless initiative. With a score of 52 in 2021, Serbia is around the global average, indicating significant room for improvement should cashless adoption come on the agenda. The mediocre score is primarily influenced by substantial cash remittances and the population’s reluctance to use digital payment tools like mobile apps. Digital currencies go hand in hand with cashless adoption. We present a panel-data analysis that shows a positive association between research and development of central bank digital currencies and cashlessness scores. We control for natural, economic or institutional circumstances that can affect a country’s decision to become cashless, such as population, output and financial development, and for country-fixed effects and outliers. Serbia shows much potential in future cashless adoption as the number of cash transactions decreases. Cash withdrawals have shown a decreasing pattern since 2016, while an increasing trend is evident in the number and value of payment transactions by cards and e-money. This latter trend is even more pronounced for card and e-money payments made to accounts abroad. The number of paper- and electronically-initiated transactions in 2021 became approximately equal, while in 2023, electronic payments already exceeded cash. The benefits of transitioning to a cashless society for individuals, businesses, governments and economies include convenience and accessibility of digital payment methods, their reduced transaction costs compared to cash, enhanced financial inclusion, improved transparency and accountability, the potential for innovations in financial services, more efficient government services, environmental sustainability by decreasing the need for paper currency production and transportation and various gains from data insights. While these benefits may seem compelling, transitioning to a cashless society presents challenges, such as concerns about privacy, security, cyber threats, unequal access to technology and the potential exclusion of vulnerable populations. Digital currencies and financial innovations transform traditional financial systems and fundamentally change how economies function and interact. Their significance lies in their potential to reshape various aspects of the financial sector and beyond, such as redefining financial transactions and strengthening transparency and security, disrupting traditional banking and unlocking new business models, fostering financial inclusion and encouraging technological adaptation and enhancing financial and regulatory efficiency. Despite these opportunities, adopting central bank digital currencies in Serbia may have several challenges. Crafting a regulatory framework that accommodates innovation while ensuring consumer protection and compliance with regulations is a complex task that requires meticulous attention. The Law on Digital Assets adopted in 2020 is a positive step in this direction. However, the inherent volatility of other digital assets, such as cryptocurrencies, may distort the perception and challenge the adoption of central bank digital currencies in daily transactions. Educating the populace about the mechanics, risks, and appropriate usage of central bank digital currencies is essential to building public trust. The opportunities and challenges of adopting central bank digital currencies in Serbia require a comprehensive further assessment. While they hold the potential to reshape financial transparency, inclusion and efficiency, the challenges of regulatory adaptation, public acceptance, technical readiness and economic stability must be effectively addressed to harness the potential benefits and mitigate associated risks.
This study is prepared as the part of the project “Macroeconomic research on cashless payment in Serbia”, funded through the develoPPP program that the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH implements on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ). The project is an integral part of the National Cashless Payment Initiative (Serbia) – “Better Way”, a joint project between GIZ and the Visa and Mastercard companies, in partnership with NALED and the Ministry of Finance of the Republic of Serbia. The author is solely responsible for the content presented in this study.
engleski
2023
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Key words: Financial innovations, digital currencies, Serbia