Asset Tokenization: A blockchain Solution to Financing Infrastructure in Emerging Markets and Developing Economies
27 Pages Posted: 3 May 2021
Date Written: July 1, 2020
Infrastructure is essential to alleviate poverty and generate long-term growth in emerging markets and developing counties (EMDEs). Nevertheless, financing of infrastructure in EMDEs is faced with pressure on increasing government deficits, issues of transparency, and high financing cost, as well as the lack of performance tracking under the current financial system. This paper explores the potential of tokenization to improve the efficiency of public finance and to mobilize broader private sources to bridge the widening infrastructure gap. Tokenization would elevate the private sector’s confidence and enthusiasm by improving infrastructure asset liquidity, opening access to small-scale projects, and enlarging the group of investors to participate in EMDE infrastructure development, as indicated in this research. From the EMDE governments’ perspective, administrative and financial efficiencies can be improved through automated auditing, enhanced project monitoring, and lower financing costs. Four case studies are presented to illustrate the asset tokenization process and define benefits associated with the emerging technology in the context of public finance and private finance. Regulatory and technical risks at present are identified. Implications for EMDE policymakers and international organizations, such as multilateral development banks, to initiate coordinated efforts to facilitate the widespread adoption of infrastructure asset tokenization in EMDEs are elaborated in the research. Once the potential risks and barriers for broader applications of tokenization are carefully examined and mitigated, the technology offers great potential to contribute to economic development and quality of life in EMDEs.
Keywords: infrastructure finance, blockchain, asset tokenization, public-private partnerships, emerging markets and developing economies
JEL Classification: G28, O18, H54
Suggested Citation: Suggested Citation