## ftnea2025002

## Source details

**Canonical URL:** [ftnea2025002](https://www.imf.org/-/media/files/publications/ftn063/2025/english/ftnea2025002.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/ftn063/2025/english/ftnea2025002.pdf.md)
- [Structured JSON version](/-/media/files/publications/ftn063/2025/english/ftnea2025002.pdf.json)

---

### Scale and structure of cross‑border payments
- Total market size in 2023: $190 trillion (approximately 190 percent of global GDP).
- Wholesale segment:
  - Size: about $145 trillion (also reported as $146 trillion in another passage).
  - Represents 77 percent of the total market.
  - Within wholesale: about 80 percent of large B2B payments are conducted by banks and investors, 18 percent by hedge funds and trading firms, remainder by governments and central banks.
- Retail segment:
  - Size: approximately $45 trillion (reported as $45 trillion and retail breakdown totals $45.5 trillion in table components).
  - Retail composition: nearly 85 percent B2B, 7 percent C2B, 4 percent B2C, 4 percent C2C.
  - Remittances constitute nearly half of all C2C cross‑border payments.
- Total flows breakdown (Table 1):
  - Wholesale (B2B): Total Flows 2023 $145.6 trillion; Average Total Cost 0.1 percent.
  - Retail (B2B): $37.9 trillion; average total cost 1.5 percent.
  - Retail (C2B): $3.1 trillion; average total cost 2.0 percent.
  - Retail (B2C): $1.7 trillion; average total cost 1.7 percent.
  - Retail (C2C): $1.8 trillion; average total cost 2.5 percent.
  - Of which remittances: $0.5 trillion; average total cost 6.2 percent.
  - TOTAL: $190.1 trillion.

### Challenges, cost drivers, and market dynamics
- Correspondent banking remains the primary settlement mechanism; the model is often complex and opaque.
- Decline in active correspondent banks: down approximately 4 percent in 2020 and about 25 percent between 2011 and 2020.
- High transaction costs and lengthy processing times are concentrated in retail transactions, driven by complexity of clearing and settlement systems and reduced competition.
- Wholesale transaction costs difficult to estimate due to opacity and bundling of services; operational costs often bundled with other financial services.
- PwC (as reported by BIS 2021b) typical cost distribution in cross‑border payments:
  - 35% Nostro‑vostro liquidity
  - 30% Treasury operations
  - 15% Foreign exchange costs
  - 10% Compliance
  - 5% Payment operations
  - 3% Overhead
  - 2% Network management
- For retail payments, foreign exchange–related costs can often comprise more than half of total costs paid by end users (G20 progress report).

### Potential of CBDCs and digital payments innovations
- Expected benefits if properly designed, integrated, and accompanied by legal/regulatory changes:
  - Reduce number of financial intermediaries.
  - Lower settlement risks.
  - Provide more transparent and faster transactions.
- CBDCs can complement private mobile money and fast payment systems; more than 80 percent of central banks see value in having both a fast payment system and a CBDC (survey evidence).
- Multi‑CBDCs and coordinated cross‑border platforms (for example, Project mBridge) could:
  - Improve liquidity management across participants (liquidity‑saving mechanisms).
  - Lower treasury operation costs by linking banks directly.
  - Reduce foreign exchange costs and compliance costs via transparency and smart‑contract benefits.
  - Potentially reduce cost components (nostro‑vostro liquidity, treasury operations, compliance, and foreign exchange) by up to 50 percent according to BIS (2021b) estimates for mBridge.
- Channels through which CBDCs might lower transaction costs:
  - Reduction of entry barriers and stronger competition.
  - Increased efficiency / cost reduction in correspondent bank networks or payment platforms.
  - Potential improvements in AML/CFT compliance (design‑dependent, tradeoffs with privacy).

### Empirical scenario, assumed cost reduction, and aggregate impacts
- Working hypothesis (illustrative calibration): emergence of CBDCs could potentially reduce transaction costs by 60 percent.
  - Drivers: increased competition through entry of new intermediaries, enhanced market competition, and to a lower degree, better AML/CFT compliance.
  - The 60 percent estimate slightly exceeds the G20 Roadmap target of a 50 percent reduction and aligns with other projections (e.g., 50 percent for the mCBDC Bridge project; 80 percent in Oliver Wyman report).
- Global aggregate savings from a 60 percent reduction:
  - Total reduction in costs about $510 billion.
  - Equivalent to 0.3 percent of total cross‑border flows.
  - Equivalent to 0.5 percent of global GDP.
- Distribution of savings (Table 3: 60 Percent Reduction in Transaction Costs):
  - Wholesale (B2B): 87.36 (In Billion USD); 0.06 (As % of Flows); 0.09 (As % of World GDP)
  - Retail B2B: 341.1; 0.9; 0.36
  - Retail C2B: 37.2; 1.2; 0.04
  - Retail B2C: 17.3; 1.02; 0.02
  - Retail C2C: 27; 1.5; 0.03
    - Of which remittances: 16.7; 3.72; 0.02
  - Total: 510; 0.27; 0.54
- Notes:
  - Largest absolute reductions occur in the retail segment; retail B2B shows the largest nominal savings (341.1 billion USD).
  - Largest relative savings by flow type are in retail C2C (27 billion USD, 1.5 percent of flows).
  - Remittances within C2C: 16.7 billion USD saved, or 3.72 percent of flows.

### Intensive‑margin elasticities and short‑term volume effects
- Focus on the intensive margin: short‑term changes in volumes between existing partners/relationships; excludes entry of new markets/participants and long‑run general equilibrium effects.
- Elasticity evidence and heterogeneity:
  - Kpodar and Imam (2024): average short‑term (one‑quarter ahead) elasticity −0.087.
  - Gibson, McKenzie, and Rohorua (2006): average price elasticity −0.22 (New Zealand‑Tonga corridor).
  - Ahmed and Martinez‑Zarzoso (2016): elasticity −1.6 (remittances to Pakistan).
  - Yang (2005): implied elasticity −0.6 (remittances to the Philippines).
- Nonlinear elasticity pattern by cost bins (Annex Table 2.2, Baseline column):
  - Group 1: −0.0246
  - Group 2: −0.0322
  - Group 3: −0.0617*
  - Group 4: −0.0800**
  - Group 5: −0.109**
  - Group 6: −0.122**
  - Group 7: −0.152***
  - Group 8: −0.183**
  - Group 9: −0.264***
  - Group 10: −0.313***
  - Group 11: −0.346***
  - Group 12: −0.399***
- Implications:
  - Wholesale (B2B) payments, with very small transaction costs, likely have very small elasticities.
  - Expensive retail payments likely have much higher elasticities.
- Baseline volume increase estimates (using elasticity assumptions: retail −0.087; wholesale −0.039):
  - Wholesale (B2B): Elasticity −0.039; Volume Increase (%) 2.4; Volume Increase ($ trillion) 3.5; Volume Increase (% of World GDP) 3.6
  - Retail B2B: −0.087; 5.2; 2; 2.1
  - Retail C2B: −0.087; 5.2; 0.2; 0.2
  - Retail B2C: −0.087; 5.2; 0.1; 0.1
  - Retail C2C: −0.087; 5.2; 0.1; 0.1
    - Of which remittances: −0.087; 5.2; 0.0; 0.0
  - Total: Volume Increase (%) 3.0; Volume Increase ($ trillion) 5.8; Volume Increase (% of World GDP) 6.1
- Key baseline conclusions:
  - Total increase in cross‑border flows estimated at around 5.8 trillion USD, representing a 3 percent increase and equal to about 6.1 percent of world GDP.
  - Increase split approximately equally between wholesale and retail segments.
  - Within retail, the majority of the increase corresponds to retail B2B flows (about 85 percent of all retail flows).
- Robustness:
  - Results are sensitive to elasticity assumptions and the intensive‑margin focus.
  - Results are robust to using a 50 percent reduction in transaction costs (Annex Table 3.1).

### Alternative (50 percent) scenario and robustness
- Scenario: 50 Percent Reduction in Transaction Costs (Annex Table 3.1)
  - Wholesale (B2B): 72.8 (In Billion USD); As % of Flows 0.05; As % of World GDP 0.08
  - Retail B2B: 284.3; 0.75; 0.30
  - Retail C2B: 31.0; 1.00; 0.03
  - Retail B2C: 14.5; 0.85; 0.02
  - Retail C2C: 22.5; 1.25; 0.02
    - Of which remittances: 14.0; 3.10; 0.01
  - Total: Reduction in Transaction Costs 425.0 (In Billion USD); As % of Flows 0.22; As % of World GDP 0.45

### Corridor‑by‑corridor and country‑level heterogeneity
- Corridor‑level heterogeneity matters because remittance corridors have widely varying costs; remittance data are the most granular public source.
- Table 5 (selected country examples; remittance flows and costs data are for 2022 except where noted):
  - Tonga: Remittances Inflows 42.87 (% of GDP); Remittances Costs (avg) 9.17 (%); Number of Corridors 29; Cost Most Expensive Corridor 9.58; Sender Corridor New Zealand; Cost Second Most Expensive Corridor 8.44; Sender Corridor Australia
  - Samoa: 29.83; 7.94; 28; 8.03; New Zealand; 7.80; Australia
  - Lebanon: 29.36; 9.01; 11; 8.11; United States; 10.81; Australia
  - Tajikistan: 27.84; 7.91; 17; 7.91; Germany
  - Gambia: 25.31; 13.45; 11; 13.45; United Kingdom
  - Lesotho: 20.27; 19.90; 1; 19.90; South Africa
- Country‑level scenario (uniform 60 percent reduction, corridor‑specific elasticities):
  - Selected outcomes (Table 6 and Figure 7):
    - Lesotho: Remittances Inflows 20.27 (% of GDP); Remittances Costs (avg) 19.90 (%); Cost Most Expensive Corridor 19.90; Increase in Flows (in %) 23.10; Increase in Flows (% of GDP) 4.68
    - Lebanon: 29.36; 9.01; 11.22; 16.32; 4.79
    - Zimbabwe: 6.29; 11.05; 13.29; 16.24; 1.02
    - Comoros: 19.67; 7.03; 7.03; 15.06; 2.96
    - Samoa: 29.83; 7.94; 8.03; 13.71; 4.09
    - Tonga: 42.87; 9.17; 9.58; 13.45; 5.77
  - Insights:
    - Small emerging markets and low‑income countries that receive large remittance inflows through relatively expensive corridors (e.g., Lesotho, Tonga, Lebanon) can experience very high increases in volumes as percent of GDP under the 60 percent fee reduction assumption.
    - Increase in remittance flows can be up to 23 percent for Lesotho, representing about 4.68 percent of its GDP.
  - Caveat: infrastructure, advertising, and adoption costs for low‑income countries could be significant; a full cost‑benefit analysis is beyond the scope of this note.

### Econometric findings (cost determinants and elasticities)
- Cost regression (specification from Beck, Janfils, and Kpodar (2022), exploiting corridor‑time variation across 365 corridors from 2011–2020):
  - Key coefficient estimates (Annex Table 2.1):
    - Share of banks: 7.428*** (pooled) and 6.383*** (pooled, clustered).
    - Number of respondents: −0.110*** and −0.0590** (pooled specifications).
    - AML index: 0.656*** and 0.542***.
    - Ln(distance): 0.520***.
    - Source rural population share: 0.0643***.
    - Destination rural population share: −0.0214***.
    - Observations: 2413 (column 1), 1807 (columns 2 and 3).
    - R‑squared: 0.188 (column 1), 0.212 (columns 2 and 3).
- Elasticity estimation details:
  - Elasticity estimation follows Kpodar and Imam (2024) using a nonlinear specification with cost bins and includes regression controls and dynamics, corridor fixed effects, and time fixed effects.
  - Elasticity increases substantially with remittance costs (see nonlinear elasticity pattern above).

### Policy implications and recommendations
- Realizing CBDC potential requires careful country‑specific tailoring:
  - Tailor CBDC strategies to country‑specific remittance cost structures and dependencies to maximize short‑term gains in financial inclusion and economic development.
  - Address legal and regulatory challenges and consider infrastructure, adoption, and public education costs, especially for low‑income countries.
- Deployment priorities and design tradeoffs:
  - Design choices should balance AML/CFT effectiveness, privacy, interoperability with existing systems, and promotion of competition and entry of new intermediaries.
  - Consider coordinated multi‑CBDC platforms and interlinking fast payment systems to capture liquidity management, treasury, and compliance cost benefits.
- Continued work:
  - Further exploration of long‑term extensive‑margin effects (new services, financial deepening, tokenization) is warranted as such effects could produce larger impacts than the short‑term intensive‑margin estimates.

*International Monetary Fund — ftnea2025002 (IMF Fintech Note).*

### references.

### References

### Identifiers
- ISBN: 9798229000611 (paper)  
- ISBN: 9798229000703 (ePub)  
- ISBN: 9798229000758 (WebPDF)  

### Subjects and Classification
- Subjects: LCSH: Digital currency. | Banks and banking—International.  
- Classification: LCC HG1710.C4 2025

### DISCLAIMER
- Fintech Notes offer practical advice from IMF staff members to policymakers on important issues. The views expressed in Fintech Notes are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

### RECOMMENDED CITATION
- Cerutti, Eugenio, Melih Firat, and Hector Perez-Saiz. 2025. “Estimating the Impact of Digital Money on Cross-Border Flows: Scenario Analysis Covering the Intensive Margin.” IMF Fintech Note 2025/002, International Monetary Fund, Washington, DC.

### Publication orders (contact information)
- International Monetary Fund, Publication Services  
  P.O. Box 92780, Washington, DC 20090, U.S.A.  
  T. +(1) 202.623.7430  
  publications@IMF.org  
  IMFbookstore.org  
  elibrary.IMF.org

### Acknowledgments and Consultations
- This note has benefited from discussions at the G20 IFA (Brazil) meeting, IMF Fintech Brownbag Seminar, the Bank of England, and internal IMF seminars.  
- The authors would like to thank Marianne Bechara, Pelin Berkmen, Gabriela Conde, Adrian Dorel, Julia Faltermeier, Andres Fernandez, Russell Green, Tommaso Mancini Griffoli, Dong He, Kenneth Kang, Joe Kogan, Yaroslav Hul, Nghi Luu, Marcello Miccoli, Maria Olivia, Sole Martinez-Peria, Svitlana Maslova, Junghwan Mok, Kieran Murphy, Nasir Rao, Andre. Reslow, Marco Reuter, Nadine Schwarz, Indulekha Thomas, Anita Tuladhar, Tomohiro Tsuruga, Dmitry Vasilyev, Torsten Wezel, Rui Xu, and the participants in seminars at the Bank of England, G20 IFA working Group Meeting, and the IMF.

*International Monetary Fund — ftnea2025002 - references.*

### Introduction

### ftnea2025002 - Introduction

### Scale and structure of cross-border payments
- The market for cross-border payments reached $190 trillion in 2023, approximately 190 percent of global GDP.
- Wholesale segment:
  - Size: about $145 trillion (also reported as $146 trillion in another passage).
  - Represents 77 percent of the total market.
  - Within wholesale, about 80 percent of large B2B payments are conducted by banks and investors, 18 percent by hedge funds and trading firms, remainder by governments and central banks.
- Retail segment:
  - Size: approximately $45 trillion (reported as $45 trillion and retail breakdown totals $45.5 trillion in table components).
  - Retail composition (Figure 2): nearly 85 percent B2B, 7 percent C2B, 4 percent B2C, 4 percent C2C.
  - Remittances constitute nearly half of all C2C cross-border payments.
- Total flows breakdown (Table 1):
  - Wholesale (B2B): Total Flows 2023 $145.6 trillion; Average Total Cost 0.1 percent.
  - Retail (B2B): $37.9 trillion; average total cost 1.5 percent.
  - Retail (C2B): $3.1 trillion; average total cost 2.0 percent.
  - Retail (B2C): $1.7 trillion; average total cost 1.7 percent.
  - Retail (C2C): $1.8 trillion; average total cost 2.5 percent.
  - Of which remittances: $0.5 trillion; average total cost 6.2 percent.
  - TOTAL: $190.1 trillion.

### Challenges, cost drivers, and market dynamics
- Correspondent banking remains the primary settlement mechanism for many cross-border payments; the model is often complex and opaque.
- Decline in active correspondent banks: down approximately 4 percent in 2020 and about 25 percent between 2011 and 2020.
- High transaction costs and lengthy processing times are concentrated mostly in retail transactions, driven by complexity of clearing and settlement systems and reduced competition.
- Wholesale transaction costs are particularly hard to estimate due to opacity and bundling of services; operational costs often bundled with other financial services.

### Potential of CBDCs and other digital payments innovations
- CBDCs, if properly designed and integrated with existing payment systems and accompanied by appropriate legal and regulatory changes, could:
  - Reduce number of financial intermediaries.
  - Lower settlement risks.
  - Provide more transparent and faster transactions.
- CBDCs can complement private mobile money and fast payment systems.
- Other innovations (interlinking fast payment systems, multilateral cross-border platforms) could deliver similar improvements if they produce similar reductions in cross-border transaction costs.
- The scenario analysis focuses on CBDCs but findings are broadly extrapolatable to other digital payments innovations that achieve similar assumed cost reductions.

### Empirical scenario, assumed cost reduction, and aggregate impacts
- Working hypothesis: emergence of CBDCs could potentially reduce transaction costs by 60 percent (based on available remittance cross-border data and Beck, Janfils, and Kpodar (2022) analysis).
  - Drivers of the 60 percent reduction: increased competition through entry of new intermediaries, enhanced market competition, and to a lower degree, better AML/CFT compliance.
  - This 60 percent estimate slightly exceeds the G20 Roadmap target of a 50 percent reduction and aligns with other projections (e.g., 50 percent for the mCBDC Bridge project; 80 percent in Oliver Wyman report).
- Global aggregate savings from a 60 percent reduction:
  - Total reduction in costs about $510 billion.
  - Equivalent to 0.3 percent of total cross-border flows.
  - Equivalent to 0.5 percent of global GDP.
- Distribution of savings:
  - Wholesale segment: small impact due to already low transaction costs.
  - Retail segment: proportionally larger impact because of higher baseline costs.
  - Remittances: a 60 percent reduction could yield savings of approximately $17 billion, or about 3.7 percent of total remittance flows.

### Elasticities, intensive margin, and short-term volume effects
- Analysis focuses on the intensive margin: short-term changes in the volume of flows between two countries within existing relationships/current consumers; excludes entry of new markets/participants and longer-term general equilibrium effects.
- Estimated elasticities of remittances with respect to transaction costs vary nonlinearly across different cost levels (following Kpodar and Imam (2024)).
- Combining a ~60 percent cost reduction with proxied elasticities for wholesale and retail indicates:
  - Differential short-term impacts on transaction volumes.
  - Large fall in transaction costs may produce limited rise in global cross-border volumes because wholesale transactions dominate volume and have low costs.
  - Most pronounced short-term effects likely for remittances.
- Results are approximations due to opaqueness and lack of cross-border transactional data, especially for wholesale segment costs, increasing uncertainty about elasticities.

### Corridor-by-corridor findings and country-level implications
- Corridor-by-corridor (disaggregate remittances) analysis allows country-by-country assessment with elasticities as functions of each corridor’s current cost structure.
- Countries with both high remittance costs and strong reliance on remittance inflows would experience significant impacts.
  - Several countries could see increases in flows up to 5 percent of GDP.
  - Example highlighted: Lesotho could experience transformative effects by reducing reliance on a single expensive corridor and promoting competition among service providers.
- Policy implication: tailoring CBDC implementation strategies to country-specific remittance cost structures and dependencies can maximize short-term gains in financial inclusion and economic development.

### Regional heterogeneity in retail payment costs
- Retail cross-border payment costs decline with payment size; remittances are the most expensive retail category.
- Transaction costs tend to be larger in Sub-Saharan Africa, the Middle East and North Africa, and Latin America.
- Negative correlation between transaction costs and the number of corridors: regions with more corridors tend to have lower transaction costs.

*Source: ftnea2025002 - Introduction (IMF Fintech Note).*

### 1. Payment Costs by Size 2. C2C Payment Costs and Corridors

### ftnea2025002 - 1. Payment Costs by Size 2. C2C Payment Costs and Corridors

### Remittance costs and policy targets
- Remittances are the most expensive payment segment, particularly in low-income countries and emerging markets.
- World Bank data across approximately 100 countries show remittance transaction costs averaging 6.2 percent of the amount sent.
- United Nations’ 2030 Agenda for Sustainable Development includes a Sustainable Development Goal adopted in September 2015 that aims to lower the cost of migrant remittances to less than 3 percent by 2030.
- High remittance prices are attributed to: underdeveloped financial infrastructure, limited competition, regulatory obstacles, lack of access to the banking sector by remittance senders and receivers, and difficulties for migrants obtaining necessary identification documentation.

### Distribution of operational costs in correspondent banks (Figure 5)
- PwC estimates (as reported by BIS 2021b) of the typical cost distribution in cross-border payments:
  - 35% Nostro-vostro liquidity
  - 30% Treasury operations
  - 15% Foreign exchange costs
  - 10% Compliance
  - 5% Payment operations
  - 3% Overhead
  - 2% Network management
- For retail payments, G20 progress report estimates foreign exchange–related costs can often comprise more than half of the total costs paid by end users.
- This operational cost structure (plus margins/markups) is passed on to senders and receivers; individual factors can vary significantly by bank and region, especially where exchange rates are highly volatile.

### G20 Roadmap targets for enhancing cross-border payments (Table 2)
- Cost
  - Wholesale: No target set.
  - Retail: Global average cost of payment to be no more than 1 percent by end-2027.
  - Remittances: Global average cost of sending $200 remittance to be no more than 3 percent by 2030.
- Speed
  - Wholesale: 75 percent of cross-border wholesale payments to be credited within one hour of payment initiation or within one hour of the pre-agreed settlement date and time for forward-dated transactions and for the remainder of the market to be within one business day of payment initiation, by end-2027.
  - Retail: 75 percent of cross-border retail payments to provide availability of funds for the recipient within one hour from the time the payment is initiated and for the remainder of the market to be within one business day of payment initiation, by end-2027.
  - Remittances: 75 percent of cross-border remittance payments in every corridor to provide availability of funds for the recipient within one hour of payment initiation and for the remainder of the market to be within one business day, by end-2027.
- Access
  - Wholesale: All financial institutions operating in all payment corridors to have at least one option and, where appropriate, multiple options for sending and receiving cross-border wholesale payments by end-2027.
  - Retail: All end users or banks to have at least one option for sending or receiving cross-border electronic payments by end-2027.
  - Remittances: More than 90 percent of individuals who wish to send or receive a remittance payment should have access to a means of cross-border electronic remittance payment by end-2027.
- Transparency
  - All payment service providers to provide at a minimum the following information concerning cross-border payments to payers and payees by end-2027: total transaction costs; the expected time to deliver funds; tracking of payment status; and terms of service.

### Potential advantages of CBDCs for cross-border payments
- CBDCs, if properly designed, regulated, and integrated, could substantially enhance cross-border payment efficiency by:
  - Being a safe and liquid asset that could reduce the number of financial intermediaries and settlement risks.
  - Enabling cross-border payment functionality from the outset, improving overall efficiency.
  - Potentially coexisting with current payment systems; survey evidence indicates more than 80 percent of central banks see value in having both a fast payment system and a CBDC.
- Multi-CBDC platforms (for example, Project mBridge) and coordinated cross-border payment platforms could:
  - Improve liquidity management across participants (liquidity-saving mechanisms).
  - Lower treasury operation costs by linking banks directly.
  - Reduce foreign exchange costs and compliance costs via transparency and smart-contract benefits.
  - Potentially reduce cost components (nostro-vostro liquidity, treasury operations, compliance, and foreign exchange) by up to 50 percent according to BIS (2021b) estimates for mBridge.

### Channels through which CBDCs might lower transaction costs
- Reduction of entry barriers and stronger competition
  - CBDCs could stimulate competition and innovation by lowering entry barriers for fintechs and banks, lowering payment costs and increasing system efficiency.
- Increased efficiency / cost reduction in correspondent bank networks or payment platforms
  - Coordinated platforms (for example, mBridge) can improve liquidity management and lower treasury operation costs by directly linking banks.
- Potential improvements in AML/CFT compliance
  - Technological innovations and CBDC design choices may enable more effective and efficient AML/CFT controls and automation of pre-trade compliance and post-trade monitoring; however, improvements depend on design choices and balancing policy goals such as data privacy.

### Empirical evidence and illustrative scenario for cost reduction
- Empirical findings referenced:
  - Beck, Janfils, and Kpodar (2022): remittance transaction costs tend to decrease with a growing presence of nonbanks and number of providers in remittance corridors; remittance costs tend to increase with perceived AML risk of the receiving country.
  - Ekberg and others (2021, Oliver Wyman): multi-CBDC solutions could reduce cross-border transaction revenue by 80 percent annually, from approximately $120 billion to $20 billion (excluding foreign exchange revenues), assuming at most one correspondent bank remains in the payment chain.
- Illustrative scenario and calibration
  - Assumption: introduction of CBDCs leads to a two standard deviation increase in the importance of nonbanks and number of providers in remittance corridors, and a possible decrease in ML/TF risks of the receiving country with effective AML/CFT measures.
  - Resulting implied remittance cost reduction: about 60 percent (an estimate slightly more ambitious than the G20 50 percent objective, aligned with mBridge and Oliver Wyman estimates).
  - Extrapolation: applying the 60 percent reduction from remittance corridors to other cross-border payment types (due to lack of detailed data for other segments) yields:
    - Total reduction in transaction costs of about $510 billion.
    - This $510 billion represents about 0.3 percent of total cross-border flows (estimated at about $190 trillion).

*Source: IMF Fintech Notes (content unit ftnea2025002) based on Financial Stability Board, BIS, World Bank, PwC, McKinsey, and cited studies as presented in the source document.*

### 0.5 percent of global GDP. Whereas the estimated savings are not very large on aggregate, there are

### ftnea2025002 - 0.5 percent of global GDP. Whereas the estimated savings are not very large on aggregate, there are

### Estimated cost savings (Scenario: 60 Percent Reduction in Transaction Costs)
- Table 3: Scenario Analysis: 60 Percent Reduction in Transaction Costs
  - Wholesale (B2B): 87.36 (In Billion USD); 0.06 (As % of Flows); 0.09 (As % of World GDP)
  - Retail
    - B2B: 341.1; 0.9; 0.36
    - C2B: 37.2; 1.2; 0.04
    - B2C: 17.3; 1.02; 0.02
    - C2C: 27; 1.5; 0.03
      - Of which remittances: 16.7; 3.72; 0.02
  - Total: 510; 0.27; 0.54
- Key summary findings:
  - Aggregate savings equal 510 billion USD, or 0.54 percent of World GDP.
  - Largest absolute reductions occur in the retail segment; retail B2B shows the largest nominal savings (341.1 billion USD, 0.9 percent of flows).
  - Largest relative savings by flow type are in retail C2C (27 billion USD, 1.5 percent of flows).
  - Remittances within C2C: 16.7 billion USD saved, or 3.72 percent of flows.
- Note: B2B = business-to-business; B2C = business-to-consumer; C2B = consumer-to-business; C2C = consumer-to-consumer.
- Source statement in text: "Source: IMF staff estimations based on 60 percent cost reduction scenario analysis and leveraging data from the G20 Roadmap progress report for retail transaction costs; McKinsey (2018) for wholesale transaction costs; and World Bank for remittances in a sample of about 100 countries (low-income countries and emerging markets)."

### Illustrative scenario: estimating increase in volumes using price elasticities
- Concept:
  - Use available proxies and scenario analysis focused on short-term intensive margins due to data scarcity and CBDC adoption/design uncertainties.
  - Remittance corridor data enables elasticity estimation.
- Literature elasticities cited:
  - Kpodar and Iman (2024): average short-term (one-quarter ahead) elasticity of −0.087.
  - Gibson, McKenzie, and Rohorua (2006): average price elasticity of −0.22 for New Zealand-Tonga corridor.
  - Ahmed and Martinez-Zarzoso (2016): elasticity −1.6 for remittances to Pakistan from 23 sending countries.
  - Yang (2005): implied elasticity −0.6 for remittances to the Philippines.

### Elasticity heterogeneity and empirical findings
- Nonlinear elasticity pattern:
  - At low transaction cost levels: average elasticity approximately −0.025 (a 1 percent increase in transaction costs reduces remittance volumes by 0.025 percent).
  - At high-cost corridors: elasticity approaches −0.4.
- Implications:
  - Wholesale (B2B) payments, with very small transaction costs, likely have very small elasticities.
  - Expensive retail payments likely have much higher elasticities.

### Baseline estimations (volume increases using elasticity assumptions)
- Elasticity assumptions:
  - Retail segment elasticity: −0.087 (corresponds to remittance cost at the mean of cross-corridor cost distribution).
  - Wholesale segment elasticity: −0.039 (approximately average of estimated elasticities in the lowest three percentiles from Figure 6).
- Table 4: Scenario Analysis: Increase in Transaction Volumes
  - Wholesale (B2B): Elasticity −0.039; Volume Increase (%) 2.4; Volume Increase ($ trillion) 3.5; Volume Increase (% of World GDP) 3.6
  - Retail
    - B2B: Elasticity −0.087; Volume Increase (%) 5.2; Volume Increase ($ trillion) 2; Volume Increase (% of World GDP) 2.1
    - C2B: −0.087; 5.2; 0.2; 0.2
    - B2C: −0.087; 5.2; 0.1; 0.1
    - C2C: −0.087; 5.2; 0.1; 0.1
      - Of which remittances: −0.087; 5.2; 0.0; 0.0
  - Total: Volume Increase (%) 3.0; Volume Increase ($ trillion) 5.8; Volume Increase (% of World GDP) 6.1
- Key baseline conclusions:
  - Total increase in cross-border flows estimated at around 5.8 trillion USD, representing a 3 percent increase and equal to about 6.1 percent of world GDP.
  - Increase split approximately equally between wholesale and retail segments.
  - Within retail, the majority of the increase corresponds to retail B2B flows (about 85 percent of all retail flows).

### Robustness, alternative considerations, and limitations
- Sensitivity:
  - Scenario analysis is particularly sensitive to elasticity assumptions and focus on intensive margin / short-term elasticities.
- Longer-term and extensive-margin considerations:
  - Literature suggests elasticity proxies could be conservative if longer-term effects produce structural changes (new services, financial deepening, tokenization).
  - Incorporating extensive-margin effects could yield much larger impacts but is beyond the short-term focus of the baseline.
- Robustness note in text: "The results are robust to using a 50 percent reduction in cross-border transaction costs as targeted by the G20 Roadmap initiative. (See Annex Table 3.1.)"

### Corridor-by-corridor remittances analysis and heterogeneous country effects
- Rationale:
  - Corridor-level heterogeneity matters because remittance corridors have widely varying costs; remittances data are the most granular public source.
- Table 5 summary (top remittance-dependent countries and corridor features)
  - Examples (Remittances Inflows (% of GDP); Remittances Costs (avg, %); Number of Corridors; Cost Most Expensive Corridor; Sender Corridor; Cost Second Most Expensive Corridor; Sender Corridor)
    - Tonga: 42.87; 9.17; 29; 9.58; New Zealand; 8.44; Australia
    - Samoa: 29.83; 7.94; 28; 8.03; New Zealand; 7.80; Australia
    - Lebanon: 29.36; 9.01; 11; 8.11; United States; 10.81; Australia
    - Tajikistan: 27.84; 7.91; 17; 7.91; Germany
    - Gambia: 25.31; 13.45; 11; 13.45; United Kingdom
    - Lesotho: 20.27; 19.90; 1; 19.90; South Africa
    - (Table shows 20 countries; remittance flows and costs data are for 2022 except Kyrgyzstan using 2021 for the corridor with Russia.)
- Country-level scenario (assuming uniform 60 percent reduction in transaction costs across corridors)
  - Apply corridor-specific elasticities based on transaction cost levels.
  - Aggregate corridor effects weighted by importance of each corridor to the receiving country.
- Table 6 and Figure 7: effects of CBDC (selected outcomes)
  - Examples (Country; Remittances Inflows (% of GDP); Remittances Costs (avg, %); Cost Most Expensive Corridor; Increase in Flows (in %); Increase in Flows (% of GDP))
    - Lesotho: 20.27; 19.90; 19.90; 23.10; 4.68
    - Lebanon: 29.36; 9.01; 11.22; 16.32; 4.79
    - Zimbabwe: 6.29; 11.05; 13.29; 16.24; 1.02
    - Comoros: 19.67; 7.03; 7.03; 15.06; 2.96
    - Samoa: 29.83; 7.94; 8.03; 13.71; 4.09
    - Tonga: 42.87; 9.17; 9.58; 13.45; 5.77
    - (Table shows 20 countries with highest increase in flows; remittance flows and costs data are for 2022 except Kyrgyzstan.)
- Key country-level insights:
  - Small emerging markets and low-income countries that receive large remittance inflows through relatively expensive corridors (e.g., Lesotho, Tonga, Lebanon) can experience very high increases in volumes as percent of GDP under the 60 percent fee reduction assumption.
  - The increase in remittance flows can be up to 23 percent for Lesotho, representing about 4.68 percent of its GDP.
- Caveat in text: "Although the expenses for maintaining the infrastructure, advertising, and educating the public to increase adoption rates could be significant for low-income countries, a cost-benefit analysis is beyond the scope of this note."

*Source: IMF staff estimations based on 60 percent cost reduction scenario analysis and leveraging data from the G20 Roadmap progress report for retail transaction costs; McKinsey (2018) for wholesale transaction costs; and World Bank for remittances in a sample of about 100 countries (low-income countries and emerging markets).*

### Conclusion

### Conclusion

### Potential of digital money and CBDCs for cross-border payments
- Digital money and CBDCs can address long-standing challenges of high costs, inefficiencies, and slow transaction speeds in cross-border payments.
- Introduction of CBDCs could significantly lower transaction costs, especially in high-cost remittance corridors, leading to a substantial increase in cross-border payment volumes.
- Mechanisms through which CBDCs could reduce costs:
  - Reducing the number of intermediaries.
  - Enhancing competition.
  - Potentially improving compliance with AML/CFT regulations.
- Other digital payments innovations (for example, interlinking fast payment systems across countries and multilateral cross-border platforms) could deliver similar increases in cross-border payment volumes if they achieve a similar assumed reduction in cross-border transaction costs.

### Distributional and corridor-specific impacts
- Impact of digital money and CBDCs will vary considerably across countries and corridors.
- Small emerging markets and low-income countries, which are heavily dependent on remittances and face high transaction costs, stand to benefit the most.
- Nonlinear nature of remittance elasticities: the increase in remittance volumes against a unit decline in remittance costs becomes more pronounced as fee levels increase.
- Corridor examples where CBDCs could lead to dramatic increases in remittance volumes and contribute significantly to GDP growth: Lesotho, Tonga, and Lebanon.
- Deployment of CBDCs could promote financial inclusion and economic development in regions where traditional financial systems have failed to deliver affordable and efficient services.

### Econometric findings (cost determinants and elasticities)
- Reduction in transaction costs estimated using specification from Beck, Janfils, and Kpodar (2022) exploiting corridor-time variation across 365 corridors from 2011 and 2020.
- Key coefficient estimates (Annex Table 2.1):
  - Share of banks: 7.428*** (pooled) and 6.383*** (pooled, clustered).
  - Number of respondents: -0.110*** and -0.0590** (pooled specifications).
  - AML index: 0.656*** and 0.542***.
  - Ln(distance): 0.520***.
  - Source rural population share: 0.0643***.
  - Destination rural population share: -0.0214***.
  - Observations: 2413 (column 1), 1807 (columns 2 and 3).
  - R-squared: 0.188 (column 1), 0.212 (columns 2 and 3).
- Elasticity estimations (Annex Table 2.2) following Kpodar and Imam (2024) using a nonlinear specification with cost bins (Groups 1–12):
  - Elasticity by cost group (Baseline column):
    - Group 1: -0.0246
    - Group 2: -0.0322
    - Group 3: -0.0617*
    - Group 4: -0.0800**
    - Group 5: -0.109**
    - Group 6: -0.122**
    - Group 7: -0.152***
    - Group 8: -0.183**
    - Group 9: -0.264***
    - Group 10: -0.313***
    - Group 11: -0.346***
    - Group 12: -0.399***
  - Elasticity increases substantially with remittance costs, from −0.024 for the lowest cost group to −0.399 for the highest cost group.
  - Regression controls and dynamics include lags of cost and remittances, Ln(GDP per capita source), Ln(GDP per capita destination), Ln(USD exchange rate), Ln(migrants population).
  - Corridor fixed effects and Time fixed effects included in the elasticity estimations.
  - Number of observations: 1902 (Baseline), 1855 (Robustness 1), 1423 (Robustness 2).
  - Number of corridors: 70 (Baseline), 69 (Robustness 1 and 2).

### Scenario analysis and robustness (50 percent reduction in transaction costs)
- Annex Table 3.1: Scenario Analysis (Robustness): 50 Percent Reduction in Transaction Costs
  - Wholesale (B2B):
    - Reduction in Transaction Costs: 72.8 (In Billion USD)
    - As % of Flows: 0.05
    - As % of World GDP: 0.08
  - Retail:
    - B2B: 284.3 (In Billion USD); As % of Flows: 0.75; As % of World GDP: 0.30
    - C2B: 31.0 (In Billion USD); As % of Flows: 1.00; As % of World GDP: 0.03
    - B2C: 14.5 (In Billion USD); As % of Flows: 0.85; As % of World GDP: 0.02
    - C2C: 22.5 (In Billion USD); As % of Flows: 1.25; As % of World GDP: 0.02
    - Of which remittances: 14.0 (In Billion USD); As % of Flows: 3.10; As % of World GDP: 0.01
  - Total:
    - Reduction in Transaction Costs: 425.0 (In Billion USD)
    - As % of Flows: 0.22
    - As % of World GDP: 0.45
- Note: IMF staff estimations based on 50 percent cost reduction scenario analysis leveraging data from the G20 Roadmap progress report for retail transaction costs; McKinsey (2018) for wholesale transaction costs; and World Bank for remittances in a sample of about 100 countries (low-income countries and emerging markets).

### Policy implications and recommendations
- Realizing the full potential of CBDCs requires careful consideration of country-specific factors.
- Policymakers should tailor CBDC strategies to address unique challenges and opportunities within each country’s remittance corridors, including legal and regulatory challenges.
- Country-specific tailoring can help maximize benefits of CBDCs and lead to more equitable and inclusive financial systems worldwide.
- Continued exploration of long-term benefits of CBDCs, including partnerships with tokenization technologies, can further transform cross-border payments and contribute to a more efficient and accessible global financial system.

*Source: FINTECH NOTES Estimating the Impact of CBDCs on Cross-Border Flows: Scenario Analysis Covering the Intensive Margin, INTERNATIONAL MONETARY FUND (Conclusion and Annexes).*

---


_Source: https://www.imf.org/-/media/files/publications/ftn063/2025/english/ftnea2025002.pdf_