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Cash will soon be obsolete. Will America be ready?

By Erik CarterWhen was the last time you made a payment with dollar bills?Some people still prefer to use cash, perhaps because they like the tactile nature of physical currency or because it provides confidentiality in transactions. But digital payments, made with the swipe of a card or a few taps on a cellphone, are fast becoming the norm.To keep their money relevant, many central banks are experimenting with digital versions of their currencies. These currencies are virtual, like Bitcoin; but unlike Bitcoin, which is a private enterprise, they are issued by the state and function much like traditional currencies. The idea is for central banks to introduce these digital currencies in limited circulation — to exist alongside cash as just another monetary option — and then to broaden their circulation over time, as they gain in popularity and cash fades away.China, Japan and Sweden have begun trials of central bank digital currency. The Bank of England and the European Central Bank are preparing their own trials. The Bahamas has already rolled out the world’s first official digital currency.The U.S. Federal Reserve, by contrast, has largely stayed on the sidelines. This could be a lost opportunity. The United States should develop a digital dollar, not because of what other countries are doing, but because the benefits of a digital currency far outweigh the costs.One benefit is security. Cash is vulnerable to loss and theft, a problem for both individuals and businesses, whereas digital currencies are relatively secure. Electronic hacking does pose a risk, but one that can be managed with new technologies. (As it happens, offshoots of Bitcoin’s technology could prove helpful in increasing security.)Digital currencies also benefit the poor and the “unbanked.” It is hard to get a credit card if you don’t have much money, and banks charge fees for low-balance accounts that can make them prohibitively expensive. But a digital dollar would give everyone, including the poor, access to a digital payment system and a portal for basic banking services. Each individual or household could have a fee-free, noninterest-bearing account with the Federal Reserve, linked to a cellphone app for making payments. (About 97 percent of American adults have a cellphone or a smartphone.)To see how this might help, consider the payments that the U.S. government made to households as part of the coronavirus stimulus packages. Millions of low-income households without bank accounts or direct deposit information on file with the Internal Revenue Service experienced complications or delays in getting those payments. Checks and debit cards mailed to many of them were delayed or lost, and scammers found ways to intercept payments. Central-bank accounts could have reduced fraud and made administering stimulus payments easier, faster and more secure.A central-bank digital currency can also be a useful policy tool. Typically, if the Federal Reserve wants to stimulate consumption and investment, it can cut interest rates and make cheap credit available. But if the economy is cratering and the Fed has already cut the short-term interest rate it controls to near zero, its options are limited. If cash were replaced with a digital dollar, however, the Fed could impose a negative interest rate by gradually shrinking the electronic balances in everyone’s digital currency accounts, creating an incentive for consumers to spend and for companies to invest.A digital dollar would also hinder illegal activities that rely on anonymous cash transactions, such as drug dealing, money laundering and terrorism financing. It would bring “off the books” economic activity out of the shadows and into the formal economy, increasing tax revenues. Small businesses would benefit from lower transaction costs, since people would use credit cards less often, and they would avoid the hassles of handling cash.To be sure, there are potential risks to central-bank digital currencies, and any responsible plan should prepare for them. For example, a digital dollar would pose a danger to the banking system. What if households were to move their money out of regular bank accounts and into central-bank accounts, perceiving them as safer, even if they pay no interest? The central bank could find itself in the undesirable position of having to allocate credit, deciding which sectors and businesses deserve loans.But this risk can be managed. Commercial banks could vet customers and maintain the central-bank digital currency accounts along with their own interest-bearing deposit accounts. The digital currency accounts might not directly help banks earn profits, but they would attract customers who could then be offered savings or loan products. (To help protect commercial banks, limits can also be placed on the amount of money stored in central-bank accounts, as the Bahamas has done.) A central-bank digital currency could be designed for use across different payment platforms, promoting private sector competition and encouraging innovations that make electronic payments cheaper, quicker and more secure.Another concern is the loss of privacy that central-bank digital currencies entail. Even with protections in place to ensure confidentiality, no central bank would forgo the ability to audit and trace transactions. A digital dollar could threaten what remains of anonymity and privacy in commercial transactions — a reminder that adopting a digital dollar is not just an economic but also a social decision.The end of cash is on the horizon, and it will have far-reaching effects on the economy, finance and society more broadly. With proper preparation and open discussion, we should embrace the advent of a digital dollar.Eswar Prasad (@EswarSPrasad) is a professor of trade policy at Cornell University, a senior fellow at the Brookings Institution and the author of the forthcoming book “The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance.”The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips. And here’s our email: letters@nytimes.com.Follow The New York Times Opinion section on Facebook, Twitter (@NYTopinion) and Instagram.

Addressing Africa’s extreme water insecurity

Access to clean, affordable, and safe drinking water is both a fundamental human right recognized by the United Nations and Goal 6 of the United Nation’s Sustainable Development Goals. However, access to this essential resource in Africa is not yet universal, with 1 in 3 Africans facing water scarcity and approximately 400 million people in sub-Saharan Africa lacking access to a basic drinking water. Access to water remains a pervasive development issue across the continent, as a 2019 report by the World Resources Institute (WRI) revealed: Indeed, addressing climate change and poor management of water resources and services is paramount to tackling Africa’s water stress.

Aqueduct, an online geographic information system (GIS) tool produced by the WRI to map global water-related risks, reveals Africa’s extensive exposure to water-related risks (Figure 1). Their model accounts for a variety of metrics, such as vulnerability to floods and droughts, water stress, and seasonal variability. “Extremely high water risk,” demarcated in dark red, covers large swaths of arid northern Africa, southern Africa, and eastern Africa. However, water risk throughout the continent is quite heterogeneous, as light patches, such as those along the Nile River, are interspersed with the areas suffering from critically high water risk. The equatorial and tropical regions around the Democratic Republic of the Congo also enjoy significant surface area with noticeably less water risk than their continental neighbors.
Figure 1. Africa faces some of the highest water risk in the world

Source: “Climate Change Is Hurting Africa’s Water Sector, but Investing in Water Can Pay Off,” World Resources Institute, 2019.
The authors maintain that understanding the continent’s water risk factors is an essential prerequisite to instituting changes to the poor management of its water resources and services, alongside bolstering climate resilience. As such, the authors highlight several areas within the water sector that require investment to improve climate resilience and better public service delivery.
Africa’s agricultural sector, the authors claim, is poised to face significant exposure to water-related climate risks in the future. As 90 percent of sub-Saharan Africa’s rural population depends on agriculture as their primary source of income and more than 95 percent of the region’s farming is reliant on rainfall, the consequences of unpredictable rainfall, rising temperatures, extreme drought, and lower crop yields expose one of Africa’s poorest communities to increasingly intense climate- and water-related hazards. Considering these hazards, WRI proposes that intergovernmental risk-pooling mechanisms, such as the African Union’s African Risk Capacity (ARC), could be increasingly important sovereign insurance mechanisms to mitigate climate disasters, as they provide faster payouts than humanitarian aid.

What lessons can Africa learn from India’s COVID-19 crisis?

India is unlikely to be the last country encountering catastrophic outbreaks as the COVID-19 pandemic persists and evolves. The lessons from India’s experience are especially relevant to other developing countries, like those in Africa, that will not benefit from the shield of mass vaccination in the near term. The overarching lesson is that COVID-19 is a “complacency virus”; its surveillance and suppression must be continually adapted.

The Indian second-wave outbreak is considered by the World Health Organization to have stemmed from the evolution of the highly transmissible B.1.617 or delta variant of the coronavirus, but catalyzed by a series of religious and political mass gathering events and reduced public health and social measures.
The delta variant was first reported in October 2020 and declared the fourth “variant of concern” by the WHO on May 11, 2021. In India, the spread of delta has dominated even that of the alpha B.1.1.7 variant (first identified in Kent, England), which itself was found to be 40-50 percent more transmissible than the original COVID-19 strain from Wuhan. Current estimates are that Delta could be a further 60 percent more transmissible than Alpha.

Public-health policymakers, having become accustomed to less aggressive variants, appear to have been caught off guard by the delta variant. In fact, on February 21, 2021, Indian officials announced they had “defeated COVID-19.” A subsequent reduction in adherence to public health and safety measures was accompanied by an outright reduction in the stringency of COVID-19 protective measures in India, with the lockdown stringency index (a measure of public health and social measures) declining in March 2021 to its lowest value since the start of the pandemic. From mid-March to April a series of potential superspreader mass gatherings were permitted, including the attendance of an estimated 9.1 million pilgrims at the Kumbh Mela religious festival, and political campaigning for state elections in West Bengal, Assam, Kerala, and Tamil Nadu.

The result, as we are now aware, has been the catastrophic and deadly spread of a second wave of COVID-19 across India and elsewhere in the world. The lessons for African countries are twofold.
Lesson 1: Virus surveillance is key to stopping the pandemic
First, as the COVID-19 pandemic matures, so must virus surveillance. The evolution of new variants has emerged as one of the most important risk factors for outbreaks. Genomic sequencing helps build an early warning system for identifying the emergence of variants of concern, as well as the spread of these variants between countries. Doing so better informs public-health policymaking.

Already, the United Kingdom—a leader in COVID-19 genomic sequencing—has reviewed and adjusted reopening schedules on the basis of risk analysis that incorporates the emergence and spread of the delta variant. Genomic sequencing data in South Africa helped determine a change in vaccination strategy in response to the emergence of the beta (B.1.351) variant, which appeared more resistant to certain vaccines.
Unfortunately, Africa’s sequencing capacity remains extremely limited with almost half of African countries unable to share any genomic sequencing data on COVID-19 variants. African countries, accordingly, have an overclouded early-warning system with little visibility over emerging risks or the circulation of variants of concern. The WHO now encourages countries to “strengthen surveillance and sequencing capacities and apply a systematic approach to provide a representative indication of the extent of transmission of [COVID-19] variants based on the local context, and to detect unusual events.”
African countries have had considerable success in regional approaches to fighting COVID-19—including the Pan-African Medical Supplies Platform, harmonized “safe trade” protocols, and the work of the Africa Centers for Disease Control and Prevention. A regional approach to variant surveillance through regional sequencing hubs is now needed to pool resources and technical capacities. Development partners can assist in building this regional capacity through initiatives such as the U.K.’s New Variant Assessment Platform.

Lesson 2: Avoid complacency
The second lesson for Africa is simply to avoid complacency. Most African countries seem to have, so far, been spared the depth of crises experienced in other regions in the fight against COVID-19. As the Indian case shows, situations can deteriorate rapidly. In many of the African countries in which case sequencing data is available, the delta variant is on the rise. Policymakers must remain on top of evolving knowledge and preparations against COVID-19.
This can involve learning from outbreaks elsewhere and adapting capacity bottlenecks accordingly, as has been the case in Kenya, in which oxygen concentration machinery was imported to Nairobi’s Metropolitan Hospital following the experience of COVID-19 related oxygen shortages in India.

The evidence suggests that, overall, African countries are continuing to face the COVID-19 crisis with vigilance and caution. The stringency of the lockdown measures imposed by African countries has remained roughly constant since November 2020, notwithstanding some country idiosyncrasy. This is perhaps not particularly surprising; until mass vaccination is extended to developing countries, including those in Africa, they face little choice but invasive lockdown measures for supressing COVID-19, and, indirectly, their economies.

Unfortunately, mass vaccination remains distant upon the African horizon. Expediting it continues to be the ultimate prize for African policymakers and their development partners. Until then however, carefully following the lessons from India and other countries will continue to help African countries to manage their COVID-19 responses and make fully informed public health and economic make decisions.
Figure 6. Stringency of Africa’s lockdowns over time, scale of 1 to 100 (white to red), January 2020 to June 2021

The economic benefits of cities in the developing world

Dulani Chunga moved from a safe, quiet but poor village in Malawi to Blantyre, the prime business city, in the hopes of changing his destiny. He was drawn to the city by stories of streetlights, the opportunity to make money, and the chance to send his children to school. He lives in Ndirande, an immense slum with squalid conditions. While his income is higher than what it used to be in his village, it is barely enough to feed his family of four—food and shelter cost a lot more in Blantyre.

The fortunes of many Dulanis are stuck in a low-development trap of developing-country cities. Yet, evidence increasingly highlights the productivity advantages of living and working in dense cities, particularly in the developing world. While productivity benefits of density, measured as the elasticity of wages with respect to density, are significant for developed country cities—0.043 in the United States and 0.03 in France—some recent estimates for developing countries are multiples higher: 0.19 in China, 0.12 in India, and 0.17 in Africa. What do these estimates tell us? A 10 percent increase in density increases productivity by 1.7 percent in Africa compared to 0.4 percent in the United States. These estimates appear implausible if we take Dulani’s experience into perspective. More broadly, 54 percent of Africa’s urban population lives in slums and 38 percent in South Asia.
How do we reconcile these elasticity estimates with reality? In a recent working paper, we examine more than 1,200 estimates of urban productivity from 70 studies covering 33 countries from 1973 to 2020. In addition, we constructed new estimates to show how urban costs, with respect to crime, congestion, and pollution, changed with density. For this, we collected data from hundreds of cities around the world, including several in developing countries.
A quick look suggests high agglomeration economies in developing countries
A casual glimpse at productivity estimates measured through wage premiums shows that these are on average nearly 5 points higher in developing countries (Figure 1).
Figure 1. People in developing countries appear to benefit more by living in cities

Source: Agglomeration Economies in Developing Countries: A Meta-Analysis.Note: This figure computes unweighted average wage elasticity estimates for each country using individual worker data for the non-services sector (reflecting either manufacturing or the entire economy). This comprises two-thirds of the developing country estimates. It reflects 271 raw elasticity estimates (144 in non-high-income countries), aggregated across different studies with different methodologies.
A broader examination tells a different story
A meta-analysis is a technique that helps explain differences in estimates across studies based on their attributes, including methodology, time period of the study, and so on. For example, studies estimating agglomeration benefits using nominal wages or labor productivity have elasticities that are 6.3 and 4.3 percentage points higher than those using total factor productivity (TFP). This suggests that part of the wage premium is driven by higher capital intensity, perhaps a result of thicker capital markets, in urban areas, rather than efficiency or spillovers per se.
Some studies also control for the fact that skilled workers are attracted to dense cities that make them productive. These studies include human capital controls such as an individual’s education, lowering agglomeration gains. Finally, econometric analysis that employs panel fixed effects, thereby controlling for the selection of better workers or firms, lowers estimates by about 1.8 percentage points. Once such study-level idiosyncrasies are accounted for, elasticity estimates for developing countries are only 1 percentage point higher than those for developed countries (Figure 2).
Figure 2. Agglomeration premiums on labor productivity nearly disappear after controlling for urban costs

Source: Agglomeration Economies in Developing Countries: A Meta-Analysis.Note: The figure uses a rope-ladder representation of a subset of the estimated coefficients from the meta-analysis model. The meta-analysis probes into the factors—methodological, data-related, controls—that influence agglomeration elasticity estimates. The methodology for meta-analysis minimizes the Bayesian Information Criterion. Using the standard errors of the coefficients, it also plots the 90 percent confidence intervals, where standard errors are clustered at the study level. Similar estimated coefficients are obtained by model selection using the Akaike Information Criterion or Bayesian Model Averaging methods.
Agglomeration premia should reflect the higher cost of working in cities (such as higher housing costs or time lost in transport) or compensation for urban disamenities such as pollution and crime. But most empirical work does not factor in these costs. Our meta-analysis shows that studies controlling for urban costs would estimate net agglomeration benefits to be 0.1 percent for high-income countries and 1 percent for non-high-income countries when using labor productivity as the outcome. These results are in line with French and Colombian data, suggesting that the net benefits from city size are close to being flat.
Our estimates on the extent of urban disamenities with respect to pollution, congestion, and crime suggests that urban disamenities are higher in developing countries. For the average city density, in high-income countries 19-30 percent fewer hours are spent in traffic congestion, pollution is 16-28 percent lower, and the homicide rate is around four times lower. In particular, the elasticity of the homicide rate is positive and very high (24 percent) in developing countries and negative (56 percent) in developed countries. This suggests that if urban costs pertaining to crime are accounted for, the magnitude of net agglomeration elasticity in developing countries would be smaller or even negative.
Are cities in developing countries different?
The findings from our systematic meta-analysis and estimates on cost elasticities support Dulani’s view on the ground. People in developing countries are concentrating—but not because they are attaining the productivity benefits of urbanizing. Developing-country cities are generally dense but not productive, and they are crime-ridden and polluted to boot. This evolution is consistent with what has been called “premature urbanization.”
In light of these findings, can we really hope that the migration of people from villages to dysfunctional cities will pull them out of poverty? The experiences of China and South Korea suggest that cities become productive when urbanization is accompanied by industrial dynamism and broader structural transformation of the national economy. Developing countries ought to focus on removing distortions that limit structural transformation that creates the impetus for spatial transformation. It is only then that cities will attain economic density, achieve higher productivity, and live up to the hopes of many more Dulanis to come.

Not “risk-on” or “risk-off”, rather What’s the risk?

In the past fortnight US Treasury yields across the maturity spectrum have oscillated in reasonably wide ranges, with the highs coinciding with the release on 13th July of US CPI-inflation data. The shape of the yield curve today is almost the same as it was on 8th July. &n… Become a member to read the […]

Training and support for female entrepreneurs in Vietnam: What do women want and need?

Considered one of the world’s poorest countries in the 1980s, Vietnam today has emerged as a rising star in Asia with impressive economic and social progress. By 2035, Vietnam aims to graduate from lower- to upper-middle income status, and become a prosperous, creative, equitable, and democratic society. As women are half of the population and women’s economic empowerment increases social and economic benefits, creating more female entrepreneurs is a central part of the government’s agenda. According to the National Strategy on Gender Equality for 2021-2030, the Vietnamese government expects to see more women business owners in the coming years, accounting for 27 percent of all enterprises by 2025 and 30 percent by 2030.

Reality
Over the past three decades, Vietnam has shown steady signs of progress in increasing its number of women entrepreneurs. Beginning with the Private Enterprises Law introduced in 1990, legislation has moved toward being more comprehensive and gender-inclusive, with women-owned SMEs (small- and medium-sized enterprises) mentioned for the first time in the Law on Support for Small- and Medium-sized Enterprises in 2017. In 2020, Vietnam ranked second in Southeast Asia and 25th globally in terms of women’s business ownership, according to the Mastercard Index of Women Entrepreneurs.
The statistics, however, are not very encouraging if we take a deeper look at women’s entrepreneurial participation. The percentage of women-owned business is still lower than the indicator set for 2020 (26.5 versus 35), and 99 percent of these are micro-, small-, and medium-sized enterprises concentrated in lower productivity sectors. In the economic downturn due to the COVID-19 pandemic, half of these enterprises were partially suspended or temporarily dissolved. Furthermore, the rate of women-owned businesses reporting decline in revenues of 75 percent or greater in the first quarter of 2020 was almost double that of their male counterparts.
The question is, what is holding back Vietnamese women entrepreneurs?
The question is, what is holding back Vietnamese women entrepreneurs? The literature shows a multitude of challenges faced by female entrepreneurs in Vietnam, including discriminatory social and cultural norms and beliefs, limited access to financing, inadequate knowledge of information and communication technologies (ICTs), lack of social networks and opportunities for capacity building, and gender-biased or even gender-blind legislation. These challenges obviously affect women’s ability to realize their entrepreneurial ambitions.
Action
A startup’s success is correlated with its founder’s investment in knowledge. Education, therefore, becomes a gateway to a brighter future for women entrepreneurs. While lack of access to training represents a significant hindrance for women, the wrong types of training and support can be an even bigger barrier. In other words, developing suitable interventions and policy strategies is no easy feat. A review of capacity building for women entrepreneurs in Vietnam conducted in 2020 revealed that existing training programs are neither demand-driven nor gender-sensitive.
Prior research suggests that training programs can fail if we do not understand learner wants and needs from the beginning. This is especially true for entrepreneurship training, as the needs and preferences of learners may vary depending on gender, stage of venture development, and the environment within which the entrepreneurs operate. Evidence, therefore, is needed to better understand Vietnamese female entrepreneurs’ learning needs and preferences to inform practices and support policies for more effective women’s entrepreneurship education and training.
To fill this gap, I will dedicate my time at Brookings as an Echidna Global Scholar to building the evidence base around Vietnamese women entrepreneurs’ perceived learning needs and preferences—the starting points for the intervention and policy development process. My hope is that the findings that emerge from qualitative interviews with participants from a women’s entrepreneurship training program in Vietnam and successful women in business, as well as state and nonstate policy actors, will support the development of future gender-responsive policies and programs for women’s entrepreneurship in Vietnam. This in turn will accelerate the growth of women-owned businesses to achieve the national development agenda.

EUROPE: Managing the pandemic – what we are watching

This updated weekly piece provides snapshots of how selected European governments are dealing with the ongoing Covid-19 pandemic. Please do not hesitate to contact us if you want to discuss any of the countries mentioned in more detail. Graph of the week Spain – The average of… Become a member to read the rest […]

SUB-SAHARAN AFRICA: Third pandemic wave hits hardest

Sub-Saharan Africa remains in the grip of a fresh Covid-19 wave stretching health services and forcing some governments to re-impose at least limited restrictions. Following major supply disruption in Q2, the region’s vaccine pipeline for the remainder of 2021 has improved… Become a member to read the rest of this article

UK: A test case for the downside risks of vaccination success

UK pandemic politics point to the downside risks that might be associated with a quick vaccine roll-out. The UK has been faster, more efficient, and the vaccine has been accepted by a larger share of the population than in almost any other developed country apart from Isra… Become a member to read the rest […]

SOUTHEAST ASIA: What to watch over the next two weeks

Indonesia is showing signs of epidemiological improvement, but the data nationally are uneven and there is a risk that the gradual easing of community restrictions planned for 26 July may be too early. Thailand, Malaysia, and Vietnam are in roughly the same situation of st… Become a member to read the rest of this […]