It is my pleasure and an honor to be here in Maputo to celebrate with you two significant milestones in Mozambique’s financial history: the 50th Anniversary of the founding of Banco de Moçambique, established in 1975 to regulate the banking sector and manage monetary policy, and the 45th Anniversary of the Metical, your national currency and a key symbol of your national identity. Congratulations!

I wish to speak about the relationship between monetary policy effectiveness, central bank credibility, and financial inclusion.  This topic has been under-explored but is of tremendous importance to economic policymaking, particularly for developing and emerging economies worldwide, notably here in Sub-Saharan Africa. From what we know today from empirical research about this topic, we can see that it has yet not entered the mainstream of economic thinking, but what we do see, and I am saying this with all humility, is that it is increasingly perceived as mainstream thinking, especially on this continent.  

And I  believe it is especially now, in a World where key values such as equality and inclusivity come under massive pressure, important to hold on to what we have learned and to maintain our values. Both our learnings and especially our values are not of a seasonal nature, I would like to believe that they are as permanent as the core mandate of the central banks.

Let us know have a closer look at this topic. While the worlds of monetary policy and financial inclusion seem distinct, they are in fact closely interconnected, and reinforcing. Financial inclusion should be seen as a vital complement to a central bank’s core mandate. Let me explain what I mean by this notion of complementarity.

Central banks have traditionally focused on managing monetary policy, controlling inflation, ensuring price stability and, more recently, financial stability. These are their core mandates, critical in maintaining overall economic stability and ensuring public trust in the financial system. However, in our rapidly evolving economies, there is growing recognition that central banks should also play a role in fostering financial inclusion.  

The Global Findex report of 2022 highlighted that 1.4 billion adults remain financially excluded. This hinders progress towards sustainable development. It also constitutes a risk to the stability of the system, and can jeopardize central banks’ efforts to achieve their core mandates of price and financial stability.

Central banks today are challenged to achieve multiple goals, which may sometimes appear to be in conflict or necessitate tradeoffs. Some have suggested that too much emphasis on financial inclusion could put the attainment of the core mandates at risk. However, a growing body of research evidence suggests that central banks’ pursuit of financial inclusion strengthens, rather than undermines, their core mandate.

We see examples of the duality of stability and inclusion from around the world – from mobile banking and digital financial services innovations, pioneered in Kenya, to enhance financial inclusion, to inflation-targeting success stories, such as in Brazil, to enhance economic stability. Regulators in these countries have demonstrated that central banks can effectively balance the goals of maintaining monetary and financial stability with fostering greater access to financial services for underserved populations.

Against this backdrop, I would like to share some reflections to illuminate how monetary policy and financial inclusion can work in tandem to support economic growth, stability, and broader financial wellbeing.

Firstly, we must recognize that effective monetary policy is a critical precondition for financial inclusion. Inflation has been referred to as a regressive tax which hits the poor the hardest. Persistent inflation and lack of price stability deter efforts to promote financial inclusion by disincentivizing saving in the formal system, driving savings to alternative assets. In Argentina, inflation soared to 143% in 2023, leading many to turn to US dollar pegged stablecoins as an alternative to depositing in the banking system.

There is robust and growing empirical research that the relationship between monetary policy and financial inclusion is two-way. That is to say: price stability supports financial inclusion, and financial inclusion also improves the effectiveness of monetary policy. Several recent studies covering Africa, Southeast Asia, and other regions, have suggested a causal relationship between financial inclusion and lower inflation, as well as other indicators of economic development.

The clearest channel for financial inclusion to impact monetary policy effectiveness is through enhancing the efficiency of monetary policy transmission mechanisms. A recent IMF working paper summarized the pathways by which this can occur, including by channeling savings from assets less sensitive to monetary policy into the banking system; extra competition in the financial sector reducing banks’ excess reserves; and the increased attractiveness of holding domestic currency.   

Global examples demonstrate the powerful impact of financial innovation in enhancing the effectiveness of monetary policy. In Kenya, mobile money has significantly boosted financial inclusion while also increasing the velocity of money. Regulators in Africa and beyond have steered the development of mobile money as a complement to, rather than a substitute for, the banking sector, encouraging collaboration to ensure mobile money goes beyond payments and can be a gateway to savings, credit, insurance and other products. Faster, more efficient transactions across the economy in turn boost consumption and investment. These innovations enable money to circulate more quickly and efficiently, which is essential for driving economic growth.

By fostering an innovative, competitive and inclusive financial ecosystem, central banks can ensure that the benefits of both financial inclusion and monetary stability are felt across all segments of society.

But beyond the increasingly well documented assertion that well-designed financial inclusion policies can support the efficiency of monetary policy transmission mechanisms, financial inclusion contributes to monetary policy goals in other ways.

I am sure that many speakers here today will focus on the relationship between central bank credibility and monetary policy as it is guided by the theme of this symposium. A credible central bank can effectively manage inflation, control interest rates, and provide economic stability, which fosters investor confidence and public trust. But in this context, I would like to highlight the relationship between central bank credibility and financial inclusion. 

Credibility is important, I suggest, not only for monetary policy but also for financial inclusion outcomes. For example, an independent Central Bank is well placed to provide long-term and apolitical oversight of the implementation of a country’s financial inclusion goals. Likely for this reason, in more than two-thirds of the countries that have published national financial inclusion strategies, the central bank has been the lead institution.

Driving the financial inclusion agenda is an opportunity for a central bank to further build its credibility with market participants and with the general public. Financial inclusion is after all one of the most public facing roles of the Central Bank. Within the AFI membership, Central Banks’ financial inclusion efforts are characterized by an approach of transparency and accountability, with goals documented through national financial inclusion strategies, and quantified financial inclusion targets set and reported on under the framework of the Maya Declaration. As of 2024, 78 members of AFI had collectively set 1,340 targets, around half of which have now been achieved.

As one example, since committing to the declaration in 2014 the BCEAO oversaw an increase in the financial inclusion rate in WAEMU from 37% in 2014 to 72% in 2023, with a significant rise in the use of e-money from 11% in 2014 to 56% in 2023.

The open communication and public accountability that has accompanied central banks’ financial inclusion goals has strengthened their credibility overall, with knock-on benefits for other goals, including monetary policy.

In 2023, AFI launched a Research Initiative on the Complementarity of Monetary Stability, Financial Stability, and Financial Inclusion. With this initiative we will provide our members with empirical evidence illustrating how financial inclusion aligns with the core mandates of central banks, using country-specific analysis as well as broader global analysis. Some initial research work has already been completed, which reveals the positive effects of financial inclusion on financial soundness.

We need further research and analysis, to better understand the dynamic interplay between monetary policy, financial stability and financial inclusion. What we can say even at this stage is that coordinated strategies are important. Policymakers should consider how financial inclusion initiatives can enhance monetary policy effectiveness and, conversely, how monetary policy decisions impact financial inclusion. So, in the coming months, AFI will expand its research and go deeper into country-level analysis. We invite like-minded partners and researchers to join us in these efforts.

Ladies and gentlemen, as I conclude my reflections, I want to emphasize the pivotal role that central banks in developing economies can play in promoting economic stability and advancing financial inclusion. This effort is crucial for fostering long-term, sustainable economic growth. By implementing effective monetary policy, embracing digital financial services and innovations, and ensuring the resilience of the financial system, central banks can unlock economic opportunities for unbanked and unserved populations. Let us ensure that no one is left behind on this transformative journey towards financial inclusion and economic well-being for all.