September 27, 2021
PRESS OFFICER: Randa Elnagar
Phone: +1 202 623-7100Email: MEDIA@IMF.org
Thank you very much Ignazio for setting the stage so well.
I am delighted to be speaking to you today, though it is a pity I cannot join you in the beautiful city of Rome. I would have liked to applaud the Italian presidency of the G20 in person for their accomplishments over the last year, and for moving this very important agenda forward.
And I would have liked to stroll through the streets of a city I love. In Rome, one is constantly reminded of history. Layer over layer, civilizations have left their mark. And beneath, quite literally, we find an architectural miracle—the aqueducts, the pipes, the sewers built by Roman engineers nearly 2000 years ago to provide “modern living standards” to a city of over 1 million people.
A plumbing system that continues to be used: hidden, yet so essential.
Today I will speak about another form of hidden infrastructure, just as essential—the plumbing of modern payment systems.
Unlike those of ancient Rome, today’s cross border payment pipes will not last for anything close to another 2,000 years.
If we are to be honest—these pipes need an urgent upgrade, now. As most people know, cross border payments today are often slow, expensive, opaque, cumbersome, and for some people inaccessible. Those who need them the most—the poor—are worst affected.
The good news is technology has ushered in a new era of innovation in payments. And the international community is coming together to help ensure we can all benefit from this innovation.
New technology will shape more than just money and payments. Financial systems more broadly will be affected, with implications for macro-financial stability, monetary policy, growth, and the international monetary system.
What we see at the Fund is an incredible jump in demand by our membership for advice on these matters—several dozen countries came to the Fund in the last 6 months alone to ask for a helping hand—because cross border payments bring both opportunity and risk.
The promise of new technologies will prevail over the potential peril if we get three things right. First, cooperation around technology and design choices. Second, a strong enabling environment, comprising incentives for private sector participation, as well as solid regulatory, legal, and data frameworks. And third, a focus on macrofinancial stability.
I) Fixing the pipes
Let me start with the first priority: the key to fixing the payment pipes is coordination.
Cross-border payments can only be as efficient as the weakest link. We must therefore fix all major hurdles at once, and ensure that solutions are interoperable between countries. The alternative—a piecemeal roll-out that would frustrate businesses and consumers—is really not a good approach.
Fortunately, the G20 Roadmap sets out the key challenges associated with cross-border payments and describes the essential elements of a response. I cannot emphasize enough the importance that countries stay in lockstep with the guidance in this Roadmap. We at the Fund will do our part.
It is appropriately broad. It will soon include clear targets for accountability. And it provides a framework for more ambitious solutions, such as directly linking existing payment systems across borders.
Singapore and Thailand, for instance, have successfully linked their payment systems. So today, a worker in Singapore can send money to their family in Thailand within minutes—just using a mobile phone number. Before, it could take two days.
Other solutions are even more forward looking.
Imagine, for example, a virtual marketplace where payment providers across countries can meet to transact according to common rules and procedures, and a common technical infrastructure. Or a platform that allows households and firms to send Central Bank Digital Currencies directly to each other, immediately and without going through multiple costly intermediaries.
Here, I would like to acknowledge the tremendous work done by the BIS Innovation Hub and its members. It is fantastic they are taking this topic early and pushing the boundaries in testing novel solutions.
II) Strengthening the enabling environment
But we can easily get carried away by technology—by the illusion that it solves all problems. Technology does not exist in isolation.
So, the second priority is to improve the enabling environment that will accelerate the adoption of new payment systems while guarding against fraud and errors. That means coordinating on clear legal, regulatory, and data frameworks—and I’m stressing all three are necessary—and developing the appropriate incentives for the private sector to bridge the gap to end-users.
The Southern African Development Community’s (SADC’s) regional payments system shows the power of getting incentives right.
A pioneer in 2013, SADC began with 3 countries and faced initial skepticism from some correspondent banks. Their response? They adjusted the proposition by lowering costs, improving transparency, and allowing simple connectivity. This incentivized banks to sign up, and the platform now includes 74 commercial banks and 8 central banks across 15 countries.
On the legal and regulatory side, standard setting bodies have already done important work, often collaborating with the IMF and other international organizations. This includes recommendations on anti-money laundering, and regulation of virtual asset service-providers, stablecoins, and even CBDC, all of which may be used in cross-border payments.
But guidance is not always enough—and many countries also need assistance with implementation. How can we do this?
Here, the IMF’s capacity development work is helping policymakers on the ground—and our broad membership means we can act as a transmission line of good practices from one country to another. One example is the Pacific Island countries where we are working with the authorities to strengthen their AML/CFT frameworks to facilitate cross-border payments and remittance flows. So, we deal with anti-money laundering and we deal with the risk of bad actors because, if we don’t, we undermine the credibility of what we are doing in the future.
I also mentioned data. I think you, Ignazio, would be the first to recognize work on the data front is also essential.
As digital money gets transferred across borders, so too does data—a valuable commodity that deserves just as much attention as transfers of money. Cooperation will be key to ensuring that data crossing borders can be trusted, accessed, and stored properly, while adhering to national privacy standards.
Progress on all these fronts—incentives, and legal, regulatory, and data frameworks—is essential so that the beautiful pipes linking payment systems will not run dry.
III) Promoting macrofinancial stability
But let’s take a further step back from the pipes. There is a potential tension between open and interoperable cross-border payments – a technical objective – and countries’ policy objectives to manage capital flows, limit volatility, and retain control over monetary policy and exchange rate regimes.
This brings me to the third priority for policymakers—to promote macro-financial stability while implementing the new generation of cross border payments. This is a vast topic; I will dwell on just two points.
The frictionless transfer of money could lead to currency substitution – the widespread use of a foreign currency to save and transact. In turn, countries would lose control of domestic monetary and financial conditions—authorities cannot set interest rates or lend in large quantities in foreign currency.
Today, countries are protected from currency substitution by sound policies and institutions that underpin trust in the domestic currency. But they are also protected – let’s face it – by frictions. It’s costly and cumbersome to hold and transact foreign currency.
As money becomes digital, these frictions dwindle. And questions arise: might countries need to limit the circulation of foreign currency on their territories to maintain policy independence? If so, how? Will the international community cooperate to design central bank digital currencies and regulate privately-issued forms of money? Will we be able to avoid erecting walls that contravene the flow of capital for investment and hedging purposes?
So, these are very delicate questions, which the IMF will help tackle, given our mandate to preserve economic and financial stability, as well as the stability of the international monetary system.
We have another job – less glitzy, but just as important to promote stability – which is to help promote financial inclusion and avoid a digital divide.
As some countries, or regions, make great strides in leveraging technology to improve cross-border payments, others may not. They may struggle to adopt, to regulate, to integrate, to evaluate the good offers and separate them from the bad. We could see fragmentation and inequality rising.
This should not happen on our watch. Not under the watch of the G20, not under the watch of the IMF. We should do everything in our power to help each of our 190 members stay abreast of developments, to capture the promise and avoid the peril.
And we can do more. We can represent these countries in fora like the G20—as the IMF has done traditionally—that foster cooperation on principles, standards, and solutions. We can help ensure that the voices, concerns, and policy objectives of all countries are heard.
IV) Conclusion
Let me conclude.
You have done a fabulous job to put the principle of cooperation at the heart of the Italian G20 Presidency.
This same principle is a cornerstone of the Fund’s new strategy on digital money.
And, together, we must put cooperation at the heart of efforts to simultaneously address the three interconnected priorities—fixing the pipes, strengthening the enabling environment, and dealing with macro-financial implications.
As the Roman emperor Marcus Aurelius said: “We are born for cooperation, as are the hands, the feet, and the eyelids, and the upper and lower jaws.”
Let us continue on this path. Cooperate.
Thank you.
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