Network Effects Could Ignite Digital Money Adoption

Network Effects Could Ignite Digital Money Adoption

The International Monetary Fund (IMF) argued that network effects could ignite the mass adoption of new digital currencies.

In a report published on July 15th, the IMF aims to create a conceptual framework for categorizing new digital currencies such as Facebook’s Libra and stablecoins and also ‘reason’ through the implications of their emergence for central bank policy.

In IMF’s analysis of e-monies which includes but not limited to blockchain-based assets, it identifies six factors that could drive their rapid growth for payments. They are convenience, ubiquity, complementarity, low transaction costs, trust and network effects. The report states:

“The first five reasons may be the spark that lights the fire of e-money; the sixth is the wind that could spread the blaze. The power of network effects to spread the adoption of new services should not be underestimated.”

Trying to drive home its point, the IMF points to the switch from email to SMS and from SMS to social messaging platforms such as Whatsapp, noting that adoption of Whatsapp was exponentially faster than the initial switch to email.

The IMF also creates a taxonomy indicating its view of the thriving digital money sector.

In a section of its analysis devoted to the question of central bank digital currencies (CBDCs), the IMF proposes a hybrid approach that would be established by a public-private partnership. It defined the proposed asset as a synthetic CBDC (sCBDC).

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