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A step forward for cross-border payments

Tobias Adrian and Kristalina Georgieva

October 19, 2020

To buy a coffee, all you have to do is swipe, insert or tap your bank card, or present your phone, and soon maybe, a blink of an eye will suffice: a quick and easy exchange of money for Coffee. But paying for imported goods or sending money overseas often involves filling out forms, waiting days, and paying – paying too much.

Progress in improving cross-border payments has been slow so far, but it is about to take a giant leap forward. So the story goes: in small steps, until a leap forward occurs. The convergence of new technologies and renewed leadership by leaders opens the door to significant progress. On the other hand, households and businesses now expect – and demand – better services.

The stakes are high. The evolution of cross-border payments has implications for the stability of the international monetary system, financial inclusion, and the smooth functioning of trade and financial markets. Reforms could further unleash innovation and spur more than welcome growth, especially in the aftermath of the COVID-19 crisis. However, there will only be a leap forward if the whole world embraces it.

And that’s what he did, in an exceptional way: the G-20 just approved a roadmap aimed at resolutely improving cross-border payments, established under the aegis of the Financial Stability Board with the support of numerous institutions, including the IMF. It is not a simple report, but a set of concrete reforms, practical measures and intermediate objectives that specific institutions will be responsible for implementing. For its part, the IMF has just published a study on the macrofinancial implications of the new forms of digital currency available across borders. Taken together, these documents clearly outline the way forward, taking into account the difficulties to be overcome. If implemented, the reforms could be a game-changer by making cross-border payments cheaper, faster, more transparent and accessible to more people.

The next step

If international cooperation has brought us this far, it will be all the more important to implement the G-20 roadmap, if not to go even further. Specifically, cooperation is needed in four areas to ensure that improvements in cross-border payments are efficient, sustainable, secure and fair.

First, when designing solutions to cross-border payment problems, all countries must be considered. Implementation capacity, existing infrastructure and financial sector development vary considerably from country to country. And to different countries, different users: large companies operating in less liquid markets; SMEs concerned with controlling costs; and a billion people who send and receive remittances (fees represent on average 7% of remittances, which is still double the figure targeted by the United Nations Sustainable Development Goals).

The G-20 roadmap is therefore intended to be flexible enough to meet the diversity of needs. Some solutions plan to improve existing systems, for example by developing trusted digital identities, which are essential for improving access to financial services. Others are more exploratory in nature and envision a world in which digital currencies move freely across borders, as easily as one would send an email. It is essential to continue to seek, examine and test all of these solutions with an open mind – and also to rule out some of them.

Second, cooperation is essential to overcome countries’ “preference for inaction” and to ensure the widest application of solutions. One example is the opening hours of settlement systems: transactions between two countries can only be settled in real time if these countries extend their hours so that they partially overlap. No country will therefore want to act alone. But the systems still need to be able to communicate with each other. However, interoperability is not straightforward: it requires basic technological, conceptual, legal and regulatory standards. Cooperation will ensure that these standards meet the needs of a large number of countries that the IMF can help bring together around the table.

Third, cooperation is essential to craft solutions that draw on the experience and perspective of all relevant actors: central banks, regulators, finance ministries, antitrust authorities, data protection agencies, and International organisations. The report of the Financial Stability Board is exemplary in this regard. In addition, the public and private sectors must cooperate by recognizing each other’s strengths: private companies to innovate and interact with users; the public sector to regulate, monitor and ultimately instill confidence in the system. Where appropriate, public-private solutions are to be studied.

Finally, cooperation involves recognizing the macro-financial effects that policies applied by one country can have on other countries. For example, new digital payment methods issued in large reserve currencies could facilitate domestic and cross-border payments. But they could also cause citizens abroad to abandon their national currencies, especially in countries with high inflation and volatile exchange rates. Digital currency could also potentially facilitate bank runs to the detriment of these countries. For their part, countries issuing these reserve currencies could be faced with greater instability in capital inflows and central bank balance sheets. Furthermore, it is not clear whether it is possible to change the restrictions on capital movements adopted by many countries in such a way that they cannot be circumvented by resorting to digital currency. Finally, the use of digital currency could pose great risks to financial integrity. Our new study presents these risks as well as other scenarios.

Global links

Monetary policy, financial stability, capital flows, foreign exchange reserves: all of these could be affected by transformations in cross-border payments, with repercussions on the international monetary system. The founding members of the IMF were aware of this connection, which to some extent explains the call to “help establish a multilateral system for the settlement of current transactions” that is contained in the organization’s constitution.

Even today, the IMF continues to play an active role in this area, working closely with other international organizations. Almost all countries are members of the IMF, which can help ensure that the digital revolution benefits people in all countries. Its global perspective can help it spot spillover effects, and it provides a common forum for addressing underlying dilemmas. Let us embark together on this promising path.


Kristalina Georgieva 

Tobias Adrian is a financial advisor and director of the IMF’s Monetary and Capital Markets Department. In this capacity, he leads the IMF’s work on financial sector surveillance, monetary and macroprudential policies, financial regulation, debt management and capital markets. In addition, he oversees capacity building activities in IMF member countries. Prior to joining the IMF, Mr. Adrian was Senior Vice President of the Federal Reserve Bank of New York and Deputy Director of the Research and Statistics Group.

Adrian has taught at Princeton University and New York University and is the author of numerous publications in economic and financial journals, including American Economic Review, Journal of Finance, Journal of Financial Economics, and Review of Financial Studies. . He holds a doctorate from the Massachusetts Institute of Technology, an MA from the London School of Economics, a diploma from Goethe University in Frankfurt and an MA from Paris-Dauphine University. He graduated from high school in literature and mathematics at the Humboldtschule in Bad Homburg.

EDITOR’S NOTE: This article is a translation. Apologies should the grammar and / or sentence structure not be perfect.

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