Fintech Notes

Trust Bridges and Money Flows: A Digital Marketplace to Improve Cross-Border Payments

By Tobias Adrian, Rodney Garratt, Dong He

March 3, 2023

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Format: Chicago

Tobias Adrian, Rodney Garratt, and Dong He. Trust Bridges and Money Flows: A Digital Marketplace to Improve Cross-Border Payments, (USA: International Monetary Fund, 2023) accessed January 17, 2025

Summary

Cross-border payments are expensive, slow, and opaque. These problems reflect multiple frictions, many of which boil down to limited trust among counterparties. Trust plays a central role in exchanging credit-based money. End users need to trust the issuers of money, and issuers must trust users to satisfy financial integrity requirements. Transactions are possible only where trust links exist. Interoperability between different forms of money can thus be conceptualized as the network of trusted links necessary for transactions. Traditionally, across borders, trust links involve exclusive bilateral credit relationships among correspondent banks. However, the fixed costs required to build these links foster an expensive and concentrated system. This paper interprets different payment arrangements in terms of the implied trust structures. It discusses how the tokenization of money alters trust links and allows for a potentially more efficient market structure to exchange money. The paper ends with a suggested global marketplace to trade tokenized money directly across borders.

Subject: Economic sectors, Financial crises, Financial markets, Financial services, Foreign exchange, Money, Technology

Keywords: Correspondent banking, Cross-border payment, Cross-border payments, Currencies, Currency markets, Digital currencies, Global, Issuers of money, Liquidity swap lines, Marketplace model, Money flow, Tokenized money, Tokenized money, Trust relationship

Publication Details

  • Pages:

    37

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Fintech Notes No 2023/001

  • Stock No:

    FTNEA2023001

  • ISBN:

    9798400227073

  • ISSN:

    2664-5912

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