{
  "title": "Bullet Train",
  "sourceUrl": "https://www.imf.org/en/publications/fandd/issues/2022/09/bullet-train-adrian-mancini-griffoli",
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  "summary": "New tokens and platforms may transform cross-border payments—and potentially much more",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Title: Bullet Train\n- Authors: TOBIAS ADRIAN, TOMMASO MANCINI-GRIFFOLI\n- Publication: F&D Magazine\n- Date: September 2022\n- Read time indicator: Less than a minute(0 words) Read\n- Key premise: New tokens and platforms may transform cross-border payments—and potentially much more"
    },
    {
      "heading": "Money, trust, and the role of central banks",
      "content": "- Fundamental definition: Money is essentially an IOU—a promise to pay—made by one party to another; \"Modern money is credit.\"\n- Trust is central: \"As money is credit, its value lies in trust.\"\n- Central banks provide two essential public goods:\n  - Reserves: \"special central bank money called 'reserves'—accounts that banks hold at the central bank\"\n  - The settlement network over which reserves are traded\n- Central banks act as bridges between distinct trust networks, enabling exchanges when parties trust different issuers"
    },
    {
      "heading": "Cross-border frictions and correspondent banking",
      "content": "- Cross-border challenges:\n  - Lack of a commonly trusted asset or network to settle transactions\n  - Scarcer information and harder legal recourse across borders\n  - Higher costs of establishing trust\n- Current mechanism: correspondent banks exchange IOUs and rely on bilateral trust (\"handshake\") to process cross-border payments\n- Market structure effects:\n  - High costs of establishing and monitoring trust limit the number of correspondents\n  - Result: payments are \"costly, slow, and opaque\" and dominated by a handful of very large institutions"
    },
    {
      "heading": "Tokenization: how it can transform correspondent banking",
      "content": "- Tokenized money defined: money accessible with a private key and transferable on a shared network (examples: stablecoins such as USD Coin; CBDC)\n- Key transformative effects:\n  - Eliminates need for two-way trusted relationships: \"Anyone can hold a token, even without having a direct relationship with the issuer.\"\n  - Lowers risks: banks receive tokenized deposits rather than unsecured IOUs\n  - Improves liquidity: tokenized holdings are \"a liquid asset that it can sell, trade, or hedge\"\n  - Enhances competition: \"correspondent banking can be made more competitive\" leading to better speed and lower fees"
    },
    {
      "heading": "Digital platforms: clearing and settlement roles",
      "content": "- Platform functions:\n  - Broadcast payment orders and collect bids for correspondent services\n  - Offer clearing services (orchestrate payments)\n  - Potentially provide settlement services (hold assets in escrow and issue tokens on the platform)\n- Asset options on platforms:\n  - Tokenized bank deposits\n  - CBDC (examples of issuers that have launched CBDC: The Bahamas and Nigeria)\n  - Well-regulated stablecoins\n- Settlement in safe assets (e.g., CBDC) can reduce disputes and attract more correspondents"
    },
    {
      "heading": "Programmability and expanded financial services",
      "content": "- Platform ledger enables smart contracts (programmable transactions), with examples:\n  - Conditional payments (\"a payment could be made only when another is received\")\n  - Automatic hedging of foreign exchange risks\n  - Pledging future incoming payments in financial contracts\n  - Auctions to encourage exchange of typically shunned currencies\n- Private sector can extend platform uses by writing smart contracts, leveraging:\n  - A common settlement platform\n  - A common programming language for interoperable smart contracts\n- Expected governance model: \"a tight public-private partnership\" requiring coordination and participation of multiple central banks"
    },
    {
      "heading": "Policy and governance considerations",
      "content": "- Main challenges:\n  - Finding the right governance arrangements for platform operation\n  - Mobilizing a sufficient number of central banks to participate\n- Institutional role suggested: \"The IMF, with its near universal membership, is a good place to start exploring these prospects.\""
    },
    {
      "heading": "Next steps and further work",
      "content": "- Authors' plan: publish two papers with coauthors Dong He, Federico Grinberg, Rod Garratt, Robert Townsend, and Nicolas Xuan-Yi Zhang\n- Purpose of papers: \"lay out an initial blueprint for such platforms\" and stimulate further discussion on shaping the future of cross-border payments\n- Closing observation: \"Much remains to be explored, debated, and eventually done.\"\n\n---\n\n Content in this bundle\n\n- Adrian\n  - Adrian (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Adrian (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/fandd/issues/2022/09/bullet-train-adrian-mancini-griffoli"
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    "Authors: Tobias Adrian, TOMMASO MANCINI-GRIFFOLI",
    "Published: September 1, 2022",
    "Title: Bullet Train",
    "Authors: TOBIAS ADRIAN, TOMMASO MANCINI-GRIFFOLI",
    "Publication: F&D Magazine",
    "Date: September 2022",
    "Read time indicator: Less than a minute(0 words) Read",
    "Key premise: New tokens and platforms may transform cross-border payments—and potentially much more",
    "Fundamental definition: Money is essentially an IOU—a promise to pay—made by one party to another; \"Modern money is credit.\"",
    "Trust is central: \"As money is credit, its value lies in trust.\"",
    "Central banks provide two essential public goods:",
    "Central banks act as bridges between distinct trust networks, enabling exchanges when parties trust different issuers",
    "Cross-border challenges:",
    "Current mechanism: correspondent banks exchange IOUs and rely on bilateral trust (\"handshake\") to process cross-border payments",
    "Market structure effects:",
    "Tokenized money defined: money accessible with a private key and transferable on a shared network (examples: stablecoins such as USD Coin; CBDC)",
    "Key transformative effects:",
    "Platform functions:",
    "Asset options on platforms:",
    "Settlement in safe assets (e.g., CBDC) can reduce disputes and attract more correspondents",
    "Platform ledger enables smart contracts (programmable transactions), with examples:",
    "Private sector can extend platform uses by writing smart contracts, leveraging:",
    "Expected governance model: \"a tight public-private partnership\" requiring coordination and participation of multiple central banks",
    "Main challenges:",
    "Institutional role suggested: \"The IMF, with its near universal membership, is a good place to start exploring these prospects.\"",
    "Authors' plan: publish two papers with coauthors Dong He, Federico Grinberg, Rod Garratt, Robert Townsend, and Nicolas Xuan-Yi Zhang",
    "Purpose of papers: \"lay out an initial blueprint for such platforms\" and stimulate further discussion on shaping the future of cross-border payments",
    "Closing observation: \"Much remains to be explored, debated, and eventually done.\"",
    "**Adrian**"
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