Cross-Border Digital Payment Systems: The Case of Singapore, Thailand, Malaysia, and Beyond

November 8, 2022

Good morning! It is a pleasure to join you today, for this discussion on cross-border digital payment systems, an area of huge importance, tremendous innovation, and also significant challenges.

It is fitting that we are looking at examples in Singapore and across Asia today, because the region is a global leader on digitalization and modernizing payments.

A revolution in digital technology and telecommunication has made an outsized impact on financial services and payments in the last three decades. We access our bank accounts from our phones, make instantaneous transfers, and buy goods and services online.

Within countries, these new ways to access digital financial services have made payment systems very efficient, inexpensive, and more inclusive.

Progress on cross-border payments, however, has been much slower. Moving money from one country to another can still be slow, expensive, and inconvenient.

Why can’t the progress made for domestic transactions be replicated for international transactions?

Start with the heavy reliance on correspondent banking. Banks rely on accounts in other banks in other jurisdictions to move money across borders and make payments on their clients’ behalf. Smaller banks, in turn, use larger banks to do this.

This is expensive. Customers may pay large spreads on the exchange rate. Fees compound as many intermediaries each get a cut. And competition in these services is actually decreasing: the number of correspondent banks globally has fallen by about a quarter over the last decade.

This hurts regular people. When a migrant worker pays seven out of every $100 she sends back to her home country in fees, that hurts her family. It also leaves small exporters less capital to grow their businesses and hire workers.

We can, and must, do better.

Promising work is underway. The G20 has made improving cross-border payments a priority. Many countries and regions are working together on innovative solutions. And the IMF—and many partners—are committed to doing our part.

First, countries are working to connect current systems to deliver immediate results. Singapore and Thailand, for instance, have made quick progress by connecting fast payment systems, resulting in lower transaction costs for cross-border payments.

But each connection between two countries must be tailor-made. This takes time and significant efforts. As more countries want to participate, we can end up with a tangled “noodle bowl” of bilateral connections. Having a common hub where countries’ fast payment systems can connect may be much more efficient, and the BIS Innovation Hub’s Nexus project is advancing in this direction.

Second, countries and international organizations are also developing new and innovative solutions. These will take longer to mature but can deliver transformational impact. A promising path is multilateral cross-border payment platforms that combine new forms of central bank digital currency (CBDC) with new technology—as the IMF, among others, has suggested.

These platforms could shorten transaction chains and improve security as central bank money would be available for settlement. And additional functionalities could be added, such as centralized FX markets that are native to these platforms and could reduce the high costs of exchanging currencies. Financial contracts, such as FX auctions could also be automated using “smart contracts.”

These systems can simplify compliance checks while still preserving countries’ data sovereignty. And they can increase trust while promoting competition. The private sector should participate and bring its ability to innovate, while the public sector would supervise.

The design of these systems will have to take policy implications into account. It requires much more than interoperable technology. Economic and financial stability must be protected, while allowing room for innovation. At the country level, authorities will need to maintain control over monetary policy, financial condition, capital-account openness, and foreign-exchange regime.

If these platforms are set up on a regional basis, we will want them to be interoperable to minimize the costs of fragmentation. Ownership and governance questions will need to be answered as well.

As part of our ongoing work on cross-border digital payments, IMF staff have recently published a working paper on these issues, which we hope will stimulate further innovation.

Partnership with forward-thinking organizations such as the Monetary Authority of Singapore and BIS are essential, because none of us have all the answers. We can learn from each other, and we can work together to design and implement innovative solutions.

The IMF is excited to work with you to shape the new digital world of money. From the migrant worker, to the small businesswoman, to major companies and governments, a more efficient, secure payment system will lessen digital divides and benefit us all.

Thank you very much.

IMF Communications Department


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