Financial System Impact of Disruptive Innovation

An efficient and resilient regulatory regime must not only deal competently with the financial system that exists currently; it must also have adaptive capacity to deal competently with the system that is emerging. This working paper examines disruptive innovations and their implications for the design of a green and inclusive financial system. It identifes five trends relevant to the design of a green and inclusive financial system:

1. Disintermediation of capital and payments – such as crowdfunding, peer to peer payments and mobile money
2. New forms of credit creation – such as digital currencies, local currencies and closed loop credit clearance systems
3. Long-term environmental and social impacts – such as the impact of  resource constraints, climate impacts, falling labour productivity, stagnating real wages, demographic change on pensions and insurance
4. Technological innovation – such as big data and the ‘internet of things’

The report considers whether the innovations have high or low potential for systemic change and whether they can be managed within existing regulatory financial policy and regulatory instruments

It also highlights six developments in the area of macroeconomic and financial policy that have potential to contribute to the design of a green and inclusive financial system: capital flow management, green credit guidance, strategic quantitative easing, full reserve banking, financial transactions tax (FTT), and the evolution of a global reserve currency.