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Navigating a Financially More Fluid World
August 28, 2026
As prepared for delivery
Many thanks Kristin, Pablo, and Stefano.
Needless to say, at the IMF we care deeply about well-functioning payment systems, both domestically and across borders.
And we embrace the role of financial innovation, which from the 1980s onward has come in waves that have vastly improved domestic payments in terms of speed, ease, and cost—with remarkably egalitarian effects, bringing tremendous benefits to poor people and poor countries.
While progress has also been made in cross-border payments, it has been uneven, and in too many cases transactions remain too costly and too slow.
Let’s face it: achieving faster progress is hard in our fragmented world where, in the context of stubborn inflation, central bankers must focus on price stability.
Yet, there are at least two important reasons why more efficient cross-border payments are a worthy goal:
The good news is that many promising projects are underway to connect national payment systems. Examples include the ECB’s best-in-class TIPS system; ASEAN’s Project Nexus with its hub and spokes; the Southern African Development Community’s TCIB which focuses on small transactions; and the BIS’s Project Agora focused on correspondent banking.
Today, one big question in front of us is whether private sector financial innovation—notably, distributed ledger technology—can help us achieve a systemic transformation of cross-border payments on a global scale.
We don’t know the answer for sure—blockchain is still a small experiment in a vast global payments picture. But it is certainly possible that tokenization and stablecoins—on their own merit and by stoking competition—will “fluidify” global finance, with stablecoins in particular showing potential to make large-value cross-border payments cheaper and faster.
How exactly this will evolve is yet to be seen, but one thing is clear: in a more fluid global financial system, the transmission of risks is faster and the penalty on policy error is larger. Sound regulatory and macro policies become even more important.
And that is what I want to focus on today: the policy requirements for success. I will make three arguments:
So let me start with financial regulation, where the core challenge is to keep up with financial innovation and prevent problems while also allowing positive change and fair competition to flourish.
New risks call for nimble responses. With tokenization automating margin calls and back-office functions, operational risks transform and reaction times shrink.
And as stablecoins are marketed as the blockchain equivalent of cash, trust is key: trust in redeemability at par in all states of the world. This calls for strict rules on reserve pools to ensure safety and liquidity, ideally harmonized internationally to support a single, recognizable asset class.
Ensuring a level playing field will also be important, requiring similar norms for similar financial instruments to guarantee fair competition and limit incentives for regulatory arbitrage.
Competition is beneficial if it pushes banks to upgrade their services, but not if it takes them down a path of increasing opacity or drains their deposit base and raises their funding costs to the point of impairing economy-wide credit.
With banks as the main lenders to households and SMEs—which in turn employ a large share of the workforce—the risk of excessive bank disintermediation cannot be taken lightly.
Finally, instances of undue regulatory complexity call for modernization. Large volumes of financial activity have migrated to less-regulated parts of the nonbank space. As steps to clamp down on illicit flows have become more stringent, cross-border payment costs have risen in places like the Caribbean and the Pacific. Payment systems have emerged where anonymity and non-traceability are features, not bugs.
To achieve its potential, this ambitious agenda requires international regulatory cooperation—to gather and share data; to align national legal and regulatory frameworks; to secure the inter-operability of different cross-border payments channels; and to reduce contagion risks.
Now let me move on to my second point: how emerging market and developing countries can navigate the complications of a more fluid and unforgiving world.
In addition to potentially disintermediating banks in excess, stablecoins could also give rise to other macro-relevant challenges: they can serve as a vehicle for tax evasion, reducing tax revenue; they can promote currency substitution, impairing monetary policy transmission; and they can make capital controls more porous.
This last risk, if realized, would pose special difficulty for the roughly one-quarter of our IMF membership that still shields itself behind capital controls, and even more so for the subset of member countries that still resorts to financial repression, forcing domestic savers to subsidize government borrowing.
The perforation of capital controls exposes countries to currency substitution risks, capital flow volatility, exchange rate instability, and a reduction of monetary sovereignty. Central banks need to respond with supervisory actions to ensure a sound domestic banking system, with appropriate regulation of domestic stablecoin intermediaries, and by increasing their foreign exchange buffers.
And as it becomes harder for countries to fall back on financial repression to limit their debt-service costs and address their fiscal challenges, governments have to pursue fundamental fiscal adjustment, broadening their tax bases and delivering smaller primary deficits.
Here I draw some comfort from the fact that many emerging markets have made good strides in recent years to strengthen their policy frameworks and institutions, from fiscal rules to independent central banks. Such progress has built resilience.
But equally, I worry that after years of generous fiscal support in many cases, there is little public appetite for consolidation.
Nevertheless, to relax now would be a costly mistake. If closed financial systems were to be forced open by technology, trust in the local currency would rest squarely on getting the policy mix right. Without that, in the fluid global financial system of tomorrow, the fallout could be swift.
Conversely, if I were to couch it positively, I could assert that the financial innovations we see stand to benefit people everywhere in the longer run—by giving them greater financial and economic freedom and by incentivizing better policies.
My third and final point today is that the countries that issue the reserve assets to back the stablecoins—let me call them “issuer countries”—will not be absolved of the foundational need for policy discipline.
These countries—led by the U.S. as the dominant provider of stablecoin backing—have a self-interest in ensuring that systems are designed not only to work well for them narrowly but to limit the risk of adverse spillovers and to safeguard the international monetary system.
For these jurisdictions, there are indeed gains waiting to be harvested with technology. As Ken Rogoff has explained, dollar-backed stablecoins create a new way for the U.S. government to tap into a worldwide stock of dollars outside the U.S. estimated at some $15 trillion.
Other things equal, casting a wider net over a broader global investor pool may help the issuer countries reduce their fiscal funding costs—although potentially at the expense of higher borrowing costs in other countries to the extent that those countries experience a substitution away from their bonds.
But these savings can only help on the margin—they are no substitute for the responsible conduct of macroeconomic policy.
In fact, credible macro policy setting in issuer countries is a necessary condition for trust in financial innovation. And there is work to be done. I won’t be true to the popular view that IMF stands for “It’s Mostly Fiscal” if I don’t make the point that today most advanced economies have public debt paths that call for policy attention. For example, U.S., French, and Japanese 10‑year sovereign bond yields are currently at their highest levels since 2007, 2008, and 1996 respectively.
And as these benchmark borrowing costs rise, they lift most of the world’s yield curves up with them—in some emerging markets this more than fully offsets hard-won spread compression.
In a context of escalating fiscal pressures, central banks around the world feel the heat and may face questions about risks of fiscal dominance. Standing here in this legendary monetary policy setting—in this great state of rodeos where every license plate shows a cowboy on a bucking bronco—let me frame the answer in the following way.
Central banks’ most critical role is to ensure inflation remains low and stable. With persistent inflationary pressures in several core jurisdictions, there is little room for anything but a rock-solid commitment to price stability. And that means no monetary policy cowboys riding to the fiscal rescue, neither in the form of lower-than-optimal policy rates nor with new asset purchase programs.
What remains then, by elimination, is the fiscal heavy lifting: difficult social choices between lower primary expenditures and higher taxes, to deliver credible medium-term fiscal consolidation. In far too many places these choices are yet to be made. Our advice: delay no longer.
In closing, let me go back to innovation and note that, no matter how much our world may fragment, technology has a habit of stitching us together again—think of air travel, the internet, or GPS: all are borderless; all make our planet smaller.
In cross-border payments, we have yet to see the sweeping transformation. But given the economic logic, I am confident we will get there—let’s make sure we put in place the right conditions to allow us to reap the benefits and manage the risks.
Thank you and back to you, Kristin.
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