Here’s why Libra and ‘stablecoins’ probably aren’t the answer to financial inclusion: The noise from the Libra hype train has been noticeably quiet these past few months. Having emerged last year with a swashbuckling raison d’etre to overturn the global financial system as we know it, successive beatdowns from regulators in large economies seem to have put a cap in its grandiose ambitions for now. What’s more, as three financial experts at the World Bank and Bank of International Settlements highlight in this VoxEU piece, the problems inherent with scaling up a stablecoin system are only magnified in emerging markets and developing economies (EMDEs), meaning their usefulness to increasing financial inclusion will likely be negligible.

Part of this is due to resource constraints in EMDEs: Countries, especially those with populations living over very large, remote areas, will face uphill battles trying to provide widespread service coverage: whether that be ensuring everyone has adequate phones and internet connectivity to use stablecoin systems, or that users have a physical agent in reach to convert their digital currency into local notes. Then there’s the issues of security, privacy and regulation. Fears that even advanced economies would be unable to prevent stablecoins being used for nefarious purposes has been one of the prominent arguments against projects like Libra taking root. And EMDEs, which tend to have weaker regulators and supervisory capacity, would likely find these challenges even harder to surmount.

An influx of stablecoins probably wouldn’t be good for EMDE financial systems: The monetary policies of the currencies that back the stablecoin would effectively be exported to EMDEs as its use proliferates. “‘Stablecoin-isation’ could mean less effective monetary transmission and, in the extreme, countries that face shocks – political, economic or financial – could face deposit outflows from banks and capital flight,” they write. This would be even more disruptive in EMDEs, which are more susceptible to liquidity shocks given their thin interbank and FX markets.

Stablecoins probably don’t have a future in their current iteration, but they have nonetheless highlighted the challenges of increasing financial inclusion and building accessible and secure international payment systems, the report says. Instead we’re likely to see an acceleration towards digital currencies issued and controlled by central banks, although this model too will encounter challenges. All eyes on China in the coming months.