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

Fintech Notes, March 3, 2023

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

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Bibliographic details

• Authors: Tobias Adrian, Rodney Garratt, Dong He
• Published: March 3, 2023
• Series: Fintech Notes
• DOI: https://doi.org/10.5089/9798400227073.063

Central thesis and problem statement

• Cross-border payments are described as expensive, slow, and opaque.
• Many frictions in cross-border payments "boil down to limited trust among counterparties."
• Trust is central to exchanging credit-based money:
  • End users must trust issuers of money.
  • Issuers must trust users to satisfy financial integrity requirements.
• Transactions are possible only where trust links exist; interoperability between different forms of money can be conceptualized as the network of trusted links necessary for transactions.

Analysis of current trust structures

• Traditional cross-border trust links take the form of exclusive bilateral credit relationships among correspondent banks.
• Fixed costs required to build these bilateral links contribute to an expensive and concentrated system.
• The paper interprets different payment arrangements in terms of their implied trust structures.

Impact of tokenization on trust links and market structure

• Tokenization of money alters trust links.
• Tokenization allows for a potentially more efficient market structure to exchange money.
• The paper discusses how tokenized money can change the architecture of cross-border exchange.

Proposed solution: a global marketplace

• The paper concludes with a suggested global marketplace to trade tokenized money directly across borders.
• The marketplace model aims to reduce reliance on exclusive bilateral correspondent relationships and lower the fixed costs that concentrate the current system.

Key publication metadata and scope

• Authors: Tobias Adrian, Rodney Garratt, Dong He
• Date: March 3, 2023
• Series: Fintech Notes No 2023/001
• Issue: 001
• Volume: 2023
• Pages: 37
• DOI: https://doi.org/10.5089/9798400227073.063
• ISBN: 9798400227073
• ISSN: 2664-5912
• Subjects: 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

Trust Bridges and Money Flows: A Digital Marketplace to Improve Cross-Border Payments, Fintech Notes 2023, 001 (2023), March 3, 2023.

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