A Leap Forward on Cross-Border Payments
IMF Blog, October 19, 2020
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- Authors: Tobias Adrian, Kristalina Georgieva
- Published: October 19, 2020
Overview
- Progress to improve cross-border payments has been slow but is poised to accelerate due to a confluence of new technologies and renewed determination among policymakers.
- Reforms aim to make cross-border payments cheaper, faster, more transparent, and more widely accessible.
- A roadmap led by the Financial Stability Board, with wide institutional participation including the IMF, has been endorsed by the G20; it comprises concrete reforms, practical steps, and milestones with institutional accountability.
- The IMF published a staff paper on the macro-financial implications of new forms of digital money available across borders, complementing the roadmap.
Potential benefits and stakes
- Reforms could be transformative for:
- The stability of the international monetary system.
- Financial inclusion.
- The efficiency of trade and financial markets.
- Unlocking innovation and growth, particularly post-COVID-19.
- Users affected range from large companies in less liquid markets, cost-conscious small- and medium-sized enterprises, to remittance senders and recipients.
Key statistic on remittances
- There are 1 billion people sending and receiving remittances, which at an average cost of 7 percent are still double the target set by United Nations’ Development Goals.
Four broad areas where cooperation is essential
- First: Design solutions with all countries in mind
- Countries differ in implementation capacity, existing infrastructure, and financial sector development; solutions must reflect diverse users and needs.
- Approaches span from improvements to existing systems (e.g., trustworthy digital identities essential for financial inclusion) to exploratory options (e.g., freely tradable digital currencies across borders).
- Continued pursuit, testing, discussion, and selective discontinuation of solutions is essential.
- Second: Overcome “inaction bias” and ensure wide applicability
- Example: Operating hours of countries’ settlement systems must overlap to enable real-time settlement; interoperability requires technological, design, legal, and regulatory standards.
- Cooperation ensures standards meet the needs of a broad community; the IMF can help convene this community.
- Third: Build inclusive, multi-stakeholder solutions
- Involve central banks, regulators, finance ministries, anti-trust agencies, data protection agencies, and international organizations.
- Public and private sectors should cooperate: private sector to innovate and interact with users; public sector to regulate, supervise, and provide trust.
- Public-private solutions should be explored where possible.
- Fourth: Recognize and manage macro-financial spillovers
- Policies in one country can affect others; new digital money issued in major reserve currencies could:
- Improve domestic and cross-border payments.
- Induce citizens abroad to forego domestic currency, especially in countries with high inflation and volatile exchange rates.
- Potentially facilitate bank runs out of affected countries.
- Source countries could face more volatile capital inflows and central bank balance sheet effects.
- Uncertainty exists around whether capital account restrictions can be redesigned to avoid circumvention by digital money.
- Use of digital money could raise significant risks to financial integrity.
- These and other scenarios are detailed in the IMF staff paper.
Global links and the IMF's role
- Transformations in cross-border payments can affect monetary policy, financial stability, capital flows, and international reserves, with implications for the international monetary system.
- The IMF’s Articles of Agreement reflect an early recognition of the link to a multilateral system of payments.
- The IMF plays an active role, working with other international organizations; near-universal membership can help ensure the digital revolution benefits people in all countries.
- The IMF’s global perspective can help identify spillover effects and provide a common forum to address underlying policy dilemmas.
Tobias Adrian, Kristalina Georgieva. October 19, 2020.