Introduction
Global cross-border payments are slow, handled by multiple intermediaries, and expensive. This is especially true for smaller payments, such as remittances. Making these payments cheaper and more efficient has the potential to greatly increase financial inclusion and growth, particularly in emerging markets and developing economies (EMDEs). The G20 made a commitment in 2020 to reduce the cost of cross-border retail payments and to make the global payments regime more inclusive by 2027. There has been progress, but significant advancements in international coordination and leadership will be required to move to a truly global regime in the near future.
The report lays out two paths to a global instant payments regime. One by knitting together existing national Instant Payment Systems (IPS) through a hub and spoke system. The other has more leapfrogging potential where financial asset claims would be tokenized and settled on a unified ledger. These two paths should be developed in tandem as the IPS route is more achievable in the short-term while the more innovative approach, known as the Finternet, could have benefits far beyond cross-border payments.
The development of both systems will require coordinated international leadership from multiple institutions. For a successful hub and spoke IPS model:
- Each country needs to develop their own national IPS, including participation and access by nonbank payment endpoint providers and with input from the private sector, as a prerequisite to joining the global system.
- The BIS should continue its role through project Nexus of providing the governance and standards frameworks to ensure these systems can be knitted together, fostering smooth cross-border functionality. As more countries join the global system, the incentives for additional countries to develop IPS increase.
- The G20 and BIS member countries should commit to interlink their IPS via Project Nexus and establish a plan and timeframe for doing so.
- The IMF should support this work from the BIS and provide country-by-country evaluations of the status and progress in developing national IPSs and in interlinking them into Nexus.
- The World Bank should enable faster adoption of IPS at the national level and by providing technical support to lower income countries.
For the Finternet to continue in its development:
- The BIS, IMF, and World Bank should establish formal advisory groups on the subject to enable central banks and regulators to develop greater technological expertise and understanding of private sector plans.
- Regulators and central banks will then be able to provide clarity about the regulations under which a tokenized regime would operate, with a focus on the goals rather than the process, and with burdens and standards proportional to the risks.
- Stronger public-private partnerships should be established in this area with an aim towards three goals: 1) enabling experimentation and demonstration projects, 2) ensuring development does not become path-dependent as technology evolves rapidly, 3) creating more on and off-ramps where tokenized assets can be converted to fiat currencies.
