Potential impacts of developments in financial technologies on monetary policy: An empirical analysis on Türkiye

Developments in financial technologies (FinTech) facilitate financial services to become cheaper, faster and more accessible. In the historical process, these developments have been influenced by technological innovations such as the transatlantic cable, credit cards, ATMs, computers, and the internet. In the present day, they are being shaped by artificial intelligence, machine learning, cloud computing, and software. Thanks to these new technological possibilities, especially payment services have become more digitalised. The digitalisation of payment services has changed the liquidity preferences of economic agents, affecting the demand for central bank money. For central banks, the precondition for conducting an effective monetary policy is the ability to accurately forecast the demand for their own money. This interaction is frequently discussed in the literature. The aim of this study is to analyse the short and long run effects of FinTech developments on monetary policy through real money demand in Türkiye. For this purpose, an index representing FinTech developments for the period 2012:Q1-2021:Q4 is constructed; national income, interest rate, exchange rate and inflation are included in the model as explanatory variables. According to the findings of the ARDL Bounds Test, FinTech developments and money demand are cointegrated, in other words, they move together in the long run. Accordingly, an increase in FinTech developments reduces the demand for money. According to the Toda-Yamamoto test conducted for the analysis of short-run causality relationships, FinTech developments were found to be the Granger cause of money demand. FinTech developments in Türkiye affect the demand for money and shape the liquidity preferences of economic agents. In order to maintain the effectiveness of its monetary policy, the CBRT should closely monitor FinTech developments and supervise and regulate activities that create an alternative to its own money. On the other hand, it should emphasise CBDC activities in line with the requirements of the digital age.