When paying for coffee, we swipe, tap, wave, and soon may wink—a quick and painless exchange of coffee for money, but when paying for imports or sending remittances, we often fill-out forms, wait for days, and pay—too much.

Progress to improve cross-border payments has been slow, but is just about to take off. That is how history evolves—one small step at a time, until it suddenly leaps forward.

The confluence of new technologies and renewed determination among policymakers are making significant improvements possible. Meanwhile, households and firms have come to expect (and demand) better services.

"Reforms have the potential to be transformative by making cross-border payments cheaper, faster, more transparent, and more widely accessible."

The stakes are high. Changes to cross-border payments have a bearing on the stability of the international monetary system, on financial inclusion, and on the efficiency of trade and financial markets. And reforms may unlock innovation and much needed growth, particularly following the COVID-19 crisis. But a leap forward will only be possible if the world works together.

And it has—in an exceptional manner. A roadmap to decisively enhance cross-border payments, led by the Financial Stability Board along with a wide set of institutions including the IMF, has just been endorsed by the G20. This is not simply one more report, but a set of concrete reforms, practical steps, and milestones that specific institutions will be held accountable to implement.

Meanwhile, the IMF just published a staff paper on the macro-financial implications of new forms of digital money available across borders. Together, these papers provide a clear path forward, mindful of the challenges that lie ahead. If implemented, reforms have the potential to be transformative by making cross-border payments cheaper, faster, more transparent, and more widely accessible.

The next step

While international cooperation has gotten us this far, it will be all the more important to implement, and potentially even surpass, the G20 roadmap. Specifically, we need cooperation in four broad areas to ensure improvements to cross-border payments are effective, sustainable, safe, and equitable.

First, solutions to cross-border payments must be designed and pursued with all countries in mind. Countries differ considerably in implementation capacity, existing infrastructure, and financial sector development. And with different countries come different users. These cover large companies operating in less liquid markets, cost-conscious small- and medium-sized enterprises, and the 1 billion people sending and receiving remittances (which at an average cost of 7 percent are still double the target set by United Nations’ Development Goals).

The G20 roadmap is appropriately flexible given this diversity of needs. Some solutions involve improvements to existing systems, such as devising trustworthy digital identities essential for financial inclusion. Others are more exploratory and consider a world in which we can freely trade digital currencies across borders, much like we send emails today. It is essential that all these solutions continue to be pursued, discussed, tested, and some discarded—with an open mind.

Second, cooperation is essential to overcome countries’ “inaction bias,” and ensure solutions are widely applicable. A simple example is the operating hours of countries’ settlement systems: only when two countries extend hours so they overlap can cross-border transactions be settled in real time. No country will want to act alone. Even then, the two systems must talk to each other. But interoperability is not a given. It requires basic technological, design, legal, and regulatory standards. Cooperation will ensure these satisfy the needs of a wide community, which the IMF can help congregate.

Third, cooperation is critical to build solutions that benefit from the experience and perspective of all relevant actors—such as central banks, regulators, finance ministries, anti-trust agencies, data protection agencies, and international organizations. The Financial Stability Board report was exemplary in this respect. Moreover, the public and private sectors must cooperate, recognizing each other’s strengths: private companies to innovate and interact with users, and the public sector to regulate, supervise, and ultimately provide trust to the system. Where possible, public-private solutions should be explored.

Lastly, cooperation means recognizing the macro-financial effects that one country’s policies can have on others. For instance, new forms of digital money issued in major reserve currencies could improve domestic as well as cross-border payments. But they could also induce citizens abroad to forego their domestic currency, especially in countries with high inflation and volatile exchange rates. And digital money could potentially facilitate bank runs out of these countries. Meanwhile, source countries could see more volatile capital inflows and central bank balance sheets.

Moreover, it is unclear if capital account restrictions, which many countries adopt, can be redesigned so they are not circumvented by digital money. Finally, the use of digital money could raise significant risks to financial integrity. These and other scenarios are detailed in our new paper.

Global links

Monetary policy, financial stability, capital flows, international reserves—all could be affected by transformations in cross-border payments, with implications for the international monetary system. The IMF’s founding members understood this link, which to some extent lies behind the vision to “assist in the establishment of a multilateral system of payments,” as stated in the Articles of Agreement.

Today, the IMF continues to play an active role in this space, working hand-in-hand with other international organizations. Our near-universal membership can help ensure that the digital revolution benefits people in all countries. And our global perspective can help recognize spillover effects, as well as provide a common forum to address the underlying policy dilemmas.

Let’s engage on this promising path together.

Kristalina Georgieva was selected Managing Director of the IMF on September 25, 2019. She assumed her position on October 1, 2019.

Before joining the Fund, Ms. Georgieva was CEO of the World Bank from January 2017 to September 2019, during which time she also served as Interim President of the World Bank Group for three months.

Previously, Ms. Georgieva helped shape the agenda of the European Union. She served as European Commission Vice President for Budget and Human Resources, overseeing the EU’s €161 billion (US $175bn) budget and 33,000 staff. In that capacity, she was deeply involved in efforts to address the Euro Area debt crisis and the 2015 refugee crisis. Before that, she was Commissioner for International Cooperation, Humanitarian Aid and Crisis Response, managing one of the world’s largest humanitarian aid budgets.

Prior to joining the European Commission, Ms. Georgieva worked for 17 years at the World Bank, culminating in her appointment as Vice President and Corporate Secretary in 2008. In this role, she served as the interlocutor between the World Bank Group’s senior management, its Board of Directors, and its shareholder countries.

Born in Sofia, Bulgaria, in 1953, Ms. Georgieva holds a Ph.D in Economic Science and a M.A. in Political Economy and Sociology from the University of National and World Economy, Sofia, where she was an Associate Professor between 1977 and 1993. During her academic career, she was visiting fellow at the London School of Economics and at the Massachusetts Institute of Technology.

Tobias Adrian is the Financial Counsellor 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. He also oversees capacity building activities in IMF member countries. Prior to joining the IMF, he was a Senior Vice President of the Federal Reserve Bank of New York, and the Associate Director of the Research and Statistics Group.

Mr. Adrian has taught at Princeton University and New York University, and has published extensively in economics and finance journals, including the American Economic Review, Journal of Finance, Journal of Financial Economics, and Review of Financial Studies. He holds a PhD from the Massachusetts Institute of Technology; an MSc from the London School of Economics; a Diplom from Goethe University Frankfurt; and a Maîtrise from Dauphine University Paris. He received his Abitur in Literature and Mathematics from Humboldtschule Bad Homburg.

This article first appeared at the IMF Blog, a forum for the views of the International Monetary Fund (IMF) staff and officials on pressing economic and policy issues of the day. The views expressed are those of the author(s) and do not necessarily represent the views of the IMF and its Executive Board. Reprinted with permission