This Policy Review provides an accessible, yet academically informed, discussion of main implications of crypto assets for the monetary, financial and payments systems in developing countries. It asks four main questions: (i) what are the trends and drivers of crypto adoption, and which developing countries have been concerned the most; (ii) what do the economics of crypto assets imply for the ease of payments, financial inclusion, privacy, illicit financial flows, and currency substitution, as well as the architecture of the international monetary system (IMS); (iii) how can regulation shape the evolution of crypto adoption and what solutions can central bank digital currencies (CBDCs) and fast retail payment systems provide; and (iv) are the monetary, financial and payments systems in developing countries ripe for embracing crypto assets?

Crypto adoption has been strong in developing countries, probably because their financial systems tend to be narrower and less regulated, their macroeconomic stability lower, and their population younger and therefore more digitally savvy. The Policy Review recognizes that crypto assets promise to solve longstanding problems of financial markets in fostering financial inclusion and providing efficient, secure, and affordable monetary transfers, while preserving cash-like privacy. Examining the economics of crypto assets, it, however, shows that most of these promises are elusive. Cryptocurrencies have no intrinsic value which, combined with their sizable volatility, makes them unsuitable as a unit of account, means of payment and store of value. Beliefs in their capacity to increase financial inclusion, reduce costs of remittances, and ease access to investment finance and export credit may, nonetheless, draw developing countries towards crypto adoption. However, any substitution of national sovereign currencies by crypto assets can jeopardize financial stability and the effectiveness of monetary policy, reduce the effectiveness of capital controls, pose risks to countries’ monetary sovereignty and, through the pseudonymous character of crypto assets, facilitate illicit financial flows. Some of these challenges can be addressed by regulation, aimed at ringfencing existing financial systems, protecting retail users, and bringing crypto exchanges under Know-your-customer (KYC) and Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) requirements. Others, such as improving financial inclusion and monetary stability, as well as ensuring secure and transparent access to public money could eventually be addressed by CBDCs.

However, given the many technical and policy challenges associated with CBDCs, developing countries may consider the potential of fast retail payment systems and improved auxiliary digital infrastructure to provide more rapidly available financial solutions.