Tag Archives: Cross-border payment

CBDC and Cross-Border Payments

The Economist reports on “The race to redefine cross-border finance:”

  • SWIFT recently launched SWIFT Go for retail payments.
  • FinTech firms often partly bypass SWIFT by aggregating payments first.
  • Ripple evades SWIFT, using a cryptocurrency for international transactions.
  • Credit card companies build infrastructure independent of SWIFT for retail (push) payments initiated by the sender.
  • JPMorgan Chase and a Singaporean bank and Temasek launched Partior for wholesale payments. This network records transfers on a permissioned blockchain.
  • CBDCs could enable banks to make overseas payments on a shared ledger.
  • SWIFT tries to collaborate with central banks.
  • Partior aims to expand, recruiting core settlement banks for both central-bank and commercial-bank digital payments in euro, renminbi and yen.

On VoxEU, Massimo Ferrari, Arnaud Mehl, Fabio Panetta, and Ine Van Robays discuss “The international dimension of central bank digital currencies: Open research questions.” They argue that research has identified three main implications of retail CBDC (with broad access):

  • ‘Dollarization’ in other countries.
  • Stronger cross-border transmission of shocks, increased exchange rate volatility and altered capital flow dynamics. “Research finds that introducing a CBDC available to non-residents ‘super charges’ uncovered interest rate parity … leads to a stronger rebalancing of global portfolios in response to shocks, and to higher exchange rate volatility.”
  • Impact on the international role of currencies.

The authors write that most models to date are unclear about what makes CBDC really different in this context. And they argue that another open question is how intensively central banks should and would cooperate. They write, somewhat optimistically, that “according to the (unwritten) code of central banking, the introduction of a CDBC in one jurisdiction must do no harm. In particular, it must not put the financial system of other jurisdictions at risk.” Let’s see.

On the Future of Payments and Settlement

In its Quarterly Review, the BIS offers nice perspectives on the future of payments. Morten Bech and Jenny Hancock survey innovations in payments, and where the problems lie. Tara Rice, Goetz von Peter and Codruta Boar examine the fall in the number of correspondent banks. Morten Bech, Umar Faruqui and Takeshi Shirakami discuss cross border payments. Morten Bech, Jenny Hancock, Tara Rice and Amber Wadsworth discuss securities settlement. And Raphael Auer and Rainer Böhme explore design choices of a retail CBDC.

BIS Stablecoin Report

The BIS has published a report on stablecoins. On Alphaville Izabella Kaminska approves but argues that the report does not contain novel points. One aspect discussed in the report concerns the benefit of stablecoins for cross-border payments; it may be limited unless technology is able to address the key friction:

A major obstacle to the interlinking of domestic payment systems and/or the development of shared global payment platforms is differing legal frameworks across jurisdictions and the associated uncertainty about the enforceability of contractual obligations resulting from participation in interlinked or shared payment platforms operating across borders.

See the VoxEU series on the topic.

Connecting Central Bank Payments Systems

In the FT, Martin Arnold reports about a new cross-border payment method tested by the Bank of England. The “interledger” program transfers money “near-instantaneously and without settlement risk.” The Bank of England

set up two simulated RTGS systems on a cloud computing platform, using the Ripple interledger to simultaneously process “a successful cross-border payment”.

This is not necessarily good news for the blockchain community. The Bank of England’s proof of concept is

“about connectivity between central bank systems rather than replacing the central bank systems with the blockchain,” [according to] Daniel Aranda, head of Europe at Ripple.