Impact of Mobile Money on Remittance Costs, Flows, and Monetary Policy in Low-Income Countries: The Case of Uganda

ABSTRACT This study explores the impact of mobile money on cross-border remittances and monetary policy. It finds that remittances are highly elastic to costs, meaning that reducing costs significantly increases remittances. The study also examines the effect of remittances on monetary policy under two regimes: one with slower remittance growth and another with higher growth. The findings indicate that while the overall responses to monetary policy shocks are similar in both regimes, higher remittance growth leads to a sluggish response in some variables, thus weakening the transmission of monetary policy. To address this, central banks in low-income countries may need to use quantitative monetary instruments in the short term and remove credit market frictions in the long term to enhance intermediation.