A Dual Strategy to Transform Cross-Border Payments

In this paper, we turn our focus to another global issue, with a much different set of public and private sector participants: How to achieve progress in making global cross-border payments less costly, faster, safer, and more inclusive—consistent with the goals established by the G20 in 2020. This paper evaluates the progress made to date, the impediments that need to be overcome, and the steps that should be undertaken to facilitate faster progress. Two competing paths are evaluated: (1) further development of national instant payment systems (IPSs) and interlinking them together and (2) a new global regime in which tokenization would digitally represent financial assets on a unified ledger. This second regime would enable instantaneous settlement and allow “smart contracts” to be embedded in the tokenized assets. Such smart contracts would enable the automatic execution of a set of instructions when a given set of conditions was met. The paper is divided into seven sections. The first discusses the G20 commitment to reduce the cost of and improve access to execution of cross-border payments, and what is being done to achieve the G20 targets. The second section of the paper evaluates two different paths to transitioning to a harmonized regime of low-cost global payments: development of national IPSs that are then linked together, or leapfrogging to a new technology and way of managing payments—tokenized payments settled on a unified ledger. The third section evaluates the development of national IPSs. The fourth evaluates progress in knitting these IPSs together, focusing on the Bank for International Settlements’ (BIS’s) Project Nexus. The fifth section evaluates the numerous issues and challenges involved with moving to a Finternet regime, and the sixth section proposes a number of actions that should be taken to help facilitate progress toward achieving the G20 cross-border payments mandate and transitioning, over the longer term, to a viable Finternet. The final section summarizes the conclusions of the report.