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© 2022 International Monetary Fund

WP/22/238

IMF Working Paper

Western Hemisphere Department

Digital Money and Remittances Costs in Central America, Panama, and the Dominican Republic

Prepared by Alina Carare, Lavinia Franco, Metodij Hadzi-Vaskov, Justin Lesniak, Dmitry Vasilyev, and Yorbol Yakhshilikov

Authorized for distribution by Manuela Goretti

December 2022

ABSTRACT: This paper investigates factors that predict variation in digital and non-digital remittance fees over time and across countries, exploring differences between CAPDR and other regions. The paper fills a void in the literature on how country- and corridor-specific factors relate to remittance fees at different levels of digitalization of the transaction mode. It also complements stylized facts and regression analysis with a survey analysis of the CAPDR authorities’ views on the latest developments, possibilities, and risks related to digital remittances with a view to gauging the authorities’ potential role in further reducing the cost of cross-border payments more generally and remittances fees in particular. The paper finds a clear trend of declining remittance fees across countries and at any level of digitalization, albeit they remain higher for CAPDR countries relative to non-CAPDR countries. More competition, financial and digital development in receiving countries—such as debit/credit card ownership or bank branch penetration—are associated with lower remittance fees, especially in CAPDR. The surveyed authorities actively explore the use of digital money to advance domestic payment systems, expedite financial inclusion, and lower remittances fees, yet see considerable risks, especially for preserving monetary sovereignty in CAPDR.

RECOMMENDED CITATION: Carare, Alina, Lavinia Franco, Metodij Hadzi-Vaskov, Justin Lesniak, Dmitry Vasilyev, and Yorbol Yakhshilikov, 2022, “Digital Money and Remittances Costs in Central America, Panama, and the Dominican Republic”, IMF Working Paper 22/238.

JEL Classification Numbers:	E50, E58, F28
Keywords:	Digital money; cryptocurrency; stablecoin; remittances
Authors’ E-Mail Addresses:	acarare@imf.org; lavinia.franco@bayes.city.ac.uk; mhadzivaskov@imf.org; jlesniak@imf.org; dvasilyev@imf.org; yyakhshilikov@imf.org

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JEL Classification Numbers:	E50, E58, F28
Keywords:	Digital money; cryptocurrency; stablecoin; remittances
Authors’ E-Mail Addresses:	acarare@imf.org; lavinia.franco@bayes.city.ac.uk; mhadzivaskov@imf.org; jlesniak@imf.org; dvasilyev@imf.org; yyakhshilikov@imf.org

Title page

WORKING PAPERS

Digital Money and Remittances Costs in Central America, Panama, and the Dominican Republic

Prepared by Alina Carare, Lavinia Franco, Metodij Hadzi-Vaskov, Justin Lesniak, Dmitry Vasilyev, and Yorbol Yakhshilikov¹

Contents

• I. Introduction

• II. Digital Money Offers an Opportunity to Reduce Remittance Fees

• III. Drivers of Digital and Non-Digital Remittances in CAPDR

  • Data and Sample

  • Hypotheses and model

  • Findings

  • Results across transaction modes

  • Adding financial and digital development

  • CAPDR-specific results

• IV. Authorities’ Survey Results

  • CBDCs

  • Crypto Assets and Stablecoins

  • Use of Digital Money for Remittances

• V. Concluding remarks

• Annex I. Drivers of Digital Remittances

  • Summary statistics

  • The distribution of remittance services by transaction mode

• Annex II. Details from Authorities’ Survey

• References

• FIGURES

• 1. Remittance Fees

• 2: Plans on CBDC Use in LAC

• 3: Factors for Adoption of CBDCs

• 4: Domestic vs. Cross-Border Payment Efficiency

• 5: Use of Crypto Assets and Stable Coins

• 6: Use of Digital Money for Remittances

• 7: Authorities’ Perception of Risks from Digital Remittances

• TABLES

• 1. Baseline – Remittance fees across transaction modes

• 2. Remittance fees across transaction modes

• 3. Remittance fees across transaction modes

• 4. Remittance fees across transaction modes – CAPDR interactions

• 5. Remittance fees across transaction modes – CAPDR interactions