International Webinar on: “Enhancing Digital and Global Infrastructures in Cross-border Payments”
IMF News, September 27, 2021
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- International Webinar on: “Enhancing Digital and Global Infrastructures in Cross-border Payments”
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- Published: September 27, 2021
Opening remarks and framing
- Speaker: Managing Director Kristalina Georgieva; event: International Webinar on: “Enhancing Digital and Global Infrastructures in Cross-border Payments”; venue: Bank of Italy, 27-28 September 2021; date of remarks: September 27, 2021.
- Central metaphor: cross-border payment systems described as the “plumbing of modern payment systems” — hidden yet essential, requiring urgent upgrade.
- Characterization of current cross-border payments: slow, expensive, opaque, cumbersome, and for some people inaccessible; poorest users worst affected.
- Demand signal: “several dozen countries came to the Fund in the last 6 months alone to ask for a helping hand.”
- Three priorities to realize the promise of new technologies and manage risks:
- Cooperation around technology and design choices.
- A strong enabling environment: incentives for private sector participation, and solid regulatory, legal, and data frameworks.
- A focus on macrofinancial stability.
I) Fixing the pipes (coordination and interoperability)
- Core finding: cross-border payments can only be as efficient as the weakest link; solutions must be interoperable and avoid piecemeal roll-outs.
- Endorsement: the G20 Roadmap sets out key challenges and essential response elements; countries should “stay in lockstep” with its guidance.
- Targets and ambitions: the Roadmap is “appropriately broad,” will include clear targets for accountability, and provides a framework for linking existing payment systems across borders.
- Examples of progress:
- Singapore and Thailand have linked their payment systems; result: a worker in Singapore can send money to family in Thailand within minutes using a mobile phone number (previously could take two days).
- BIS Innovation Hub’s testing of novel solutions acknowledged as important early work.
- Forward-looking scenarios described:
- A virtual marketplace where payment providers across countries transact under common rules and a common technical infrastructure.
- A platform to allow households and firms to send Central Bank Digital Currencies directly to each other immediately and without multiple costly intermediaries.
II) Strengthening the enabling environment (legal, regulatory, data, incentives)
- Key point: technology alone does not solve problems; complementary legal, regulatory, and data frameworks plus private-sector incentives are necessary.
- SADC regional payments system case study:
- Pioneer in 2013; began with 3 countries.
- Adjustments made: lowering costs, improving transparency, allowing simple connectivity to incentivize participation.
- Platform composition now includes 74 commercial banks and 8 central banks across 15 countries.
- Standard-setting and guidance:
- Existing work covers anti-money laundering, regulation of virtual asset service-providers, stablecoins, and CBDC — all potentially used in cross-border payments.
- Implementation assistance is often required beyond guidance.
- IMF capacity development role:
- Acting as a transmission line of good practices across members.
- Example: work with Pacific Island countries to strengthen AML/CFT frameworks to facilitate cross-border payments and remittance flows.
- Data considerations:
- As digital money crosses borders, data also crosses borders; data requires attention equal to money transfers.
- Cooperation needed to ensure cross-border data can be trusted, accessed, and stored properly while adhering to national privacy standards.
III) Promoting macrofinancial stability
- Tension highlighted: technical objective of open, interoperable cross-border payments versus policy objectives to manage capital flows, limit volatility, and retain monetary policy and exchange rate control.
- Specific risks:
- Currency substitution: frictionless transfers could lead to widespread use of a foreign currency for saving and transactions, undermining domestic monetary and financial conditions.
- Loss of policy tools: authorities cannot set interest rates or lend in large quantities in foreign currency if substitution takes hold.
- Current protections and concerns:
- Today’s protections: sound policies and institutions that underpin trust in domestic currency, and existing frictions that make foreign currency holding costly.
- As money becomes digital, frictions dwindle, raising questions:
- Might countries need to limit circulation of foreign currency on their territories to maintain policy independence? If so, how?
- Will the international community cooperate to design CBDCs and regulate privately-issued forms of money?
- Can walls be avoided that would contravene capital flow benefits for investment and hedging purposes?
- Inclusion and fragmentation risk:
- Risk of a digital divide where some countries/regions advance while others lag, leading to fragmentation and rising inequality.
- IMF and G20 roles: help all 190 IMF members stay abreast of developments, capture promise, avoid peril, and ensure their voices are heard in fora that foster cooperation on principles, standards, and solutions.
IV) Policy recommendations and institutional roles
- Immediate priorities (three interlinked):
- Fixing the pipes: coordinate across countries to ensure interoperable technical solutions and avoid piecemeal roll-outs.
- Strengthening the enabling environment: coordinate legal, regulatory, and data frameworks and create incentives for private sector participation and end-user connectivity.
- Promoting macrofinancial stability: assess and manage risks such as currency substitution and fragmentation, and support financial inclusion.
- Practical steps and roles:
- Follow and implement the G20 Roadmap and its accountability targets.
- Scale regional and cross-border linking examples (e.g., Singapore-Thailand linkage, SADC regional platform).
- Support standard setting, and provide capacity development for implementation (IMF role highlighted, including work in Pacific Island countries).
- Prioritize data governance and cross-border data cooperation consistent with national privacy standards.
- Represent members’ concerns and policy objectives in international fora to foster cooperative design and regulation of CBDC and private-money solutions.
Conclusion
- Cooperation is essential and central to the IMF’s new strategy on digital money.
- The three interconnected priorities—fixing the pipes, strengthening the enabling environment, and dealing with macro-financial implications—must be addressed together.
- Quotation: Marcus Aurelius — “We are born for cooperation, as are the hands, the feet, and the eyelids, and the upper and lower jaws.”
- Closing exhortation: “Let us continue on this path. Cooperate. Thank you.”
Remarks by Managing Director Kristalina Georgieva, Bank of Italy, 27-28 September 2021; September 27, 2021.