Person:

Ahmady, Ajmal

The development of payment systems is critical to improve financial inclusion. This paper reviews the development of payment systems across four developing countries: Afghanistan, Kenya, Brazil, and India. There are two primary conclusions that we can draw from this research: (1) the development of payment systems is country-specific and dependent on a number of factors, and (2) there is no technology constraint to achieving 100% financial inclusion in developing economies. I conclude by providing a framework to understand the factors that drive development of payment systems and another framework to significantly increase financial inclusion.

To begin, we review Afghanistan’s central bank (DAB) payment systems. Under very challenging circumstances, DAB was able to implement automated clearing house (ACH) and real-time gross settlement (RTGS) systems that allowed for electronic interbank payments to begin in December 2020. Furthermore, DAB was able to integrate its central switch with all telecom operators by June 2021 to allow for mobile payments between mobile wallets, as well as between mobile wallets and bank accounts.

DAB was also able to obtain the verbal agreement from all mobile network operators (MNOs) in August 2021 to create a mobile wallet for every citizen of Afghanistan, which would have allowed financial inclusion to increase from approximately 12% to 100%. Unfortunately, the Taliban takeover halted progress on these programs.

In addition to the case study of DAB’s payment systems, this paper also reviews case studies from other three other countries - including Kenya’s M-PESA program, Brazil’s PIX, and India’s UPI program. We then recommend a framework that may be of use to policymakers from developing countries that seek to accelerate the development of their own domestic payment systems. The recommended three-part framework consists of developing the proper technology stack, regulatory stack, and corporate governance structure. Finally, we provide a broader framework to increase financial inclusion more generally.

This paper reviews the international reserves management strategy of Afghanistan’s central bank (DAB). We also review the sanctions and legal issues pertaining to DAB’s reserves upon the fall of the previous government. While international reserves of other countries have previously been frozen, this is one of the few global cases where international funds were confiscated. We use this as a case study, and conclude with recommendations for (1) reserves management in developing economies, and (2) a framework for the use of confiscated funds.

The study and conduct of monetary policy is well established for developed market central banks. The literature is less comprehensive for smaller developing economies. This paper hopes to contribute to such literature.1 In particular, I use the case study of Afghanistan’s central bank (DAB) during 2021-2022 to show that the optimal conduct of monetary policy in developing economies differs from advanced and larger developing economies in three fundamental ways.

The main conclusion is that small countries with underdeveloped debt markets and high dollarization will find it difficult to use interest rates at their primary monetary policy tool. This is due to a weak monetary policy transmission mechanism to the real economy and to inflation. Therefore, in such a constrained environment, the next best monetary tool is to target monetary aggregates. I then provide a framework that can be used to manage monetary aggregate levels.

This paper reviews the development of Afghanistan’s central bank (DAB) risk management practices, including both operational risk management and anti-money laundering (AML) and counter-financing of terrorism (CFT) risk management. We then develop a few principles that may be of use to policymakers from frontier economies as they review their own risk management regimes.