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How can blockchain transform development? Proponents argue it will help deliver money faster, more securely, and more transparently; that it will improve citizens’ access to their rights; and reduce exploitation of the most vulnerable. CGD analysis takes a clear-eyed view of the opportunities and limits of blockchain’s distributed ledger technology and suggests how technologists and development practitioners can work together to realize its potential.
One of the bubblier aspects of the recent enthusiasm for all things blockchain has been the rise in popularity of initial coin offerings (ICOs), also known as token sales. By design, the acronym calls to mind the more traditional fundraising model of initial public offerings (IPOs), in which companies sell equity stakes to investors. With ICOs however, companies use blockchain technology to issue digital assets (usually referred to as tokens or coins) to investors rather than equity stakes. Another key difference—at least for the time being—is that ICOs are virtually unregulated. In fact, many of the advantages ICOs have over more traditional fundraising platforms derive from their unregulated status.
As the price of bitcoin continues its dizzying rise—the currency briefly surpassed $19,000 yesterday—the already passionate debate about its role in the global economy has become even more heated. Over the last two months, prominent economists and financiers, including Citi CEO Jamie Dimon, former IMF Chief Economist Kenneth Rogoff, and former Chair of the US Federal Reserve Ben Bernanke have all voiced skepticism about the currency, triggering a loud response from the crypto community.
As the evidence of mobile money’s ability to improve financial access continues to grow, some in the development community are exploring whether a new wave of digital innovation, including digital currencies and blockchain technology, can play a similar role. To date, however, only a small number of start-ups using these technologies have been able to develop profitable business models, while others have struggled to overcome some of the same hurdles faced by more traditional financial actors. For this reason, some are skeptical that these new technologies will significantly improve financial inclusion. This event, which is co-hosted by the Center for Global Development and World Bank’s Blockchain Lab, will bring together policy experts working on the forefront of financial inclusion and technology, along with the CEO of BitPesa, a company that uses blockchain technology to facilitate payments between Africa and the rest of the world. The panel will discuss the opportunities and challenges facing start-ups seeking to use blockchain technology to expand financial access in emerging and frontier markets. CGD Policy Fellow Michael Pisa will moderate the discussion.
While blockchain-based solutions have the potential to increase efficiency and improve outcomes dramatically in some use cases and more marginally (if at all) in others, key constraints must be resolved before blockchain technology can meet its full potential in this space. Overcoming these constraints will require increased dialogue between the development and technology communities and a stronger commitment to collecting and sharing data about what’s working and what isn’t in pilot projects that use the technology.
Distributed ledger technology, like Bitcoin’s blockchain, has the potential to transform cross-border payments, boost financial inclusion, and lessen the unintended consequences of anti-money laundering enforcement. Ripple, a fintech company using distributed ledger technology, made headlines recently, as did the appearance of a new cryptocurrency, Zcash. If you’ve gotten swept up in the enthusiasm around emerging financial technologies (fintech), you may think that the creaking system of international transfers in fiat currencies, and the problems of global financial exclusion associated with it, will soon come to an end. However, as we’ve said before, these innovations may not have as much of an impact as you expect.