ITB 2022 Special Reporting
Confronting Fragmentation
By Kristalina Georgieva, IMF Managing Director
Sunday, 15th May 2022

In today's edition we focus on geopolitical fragmentation and competing systems for cross-border payments, Korea's recovery and stagflation concerns, policy coordination in the euro area, economic expertise in fragile states, the Ukraine war's impact on sub-Saharan Africa, a rise in social unrest, and much more.

Global economic integration has supported growth and lifted more than 1 billion people out of extreme poverty over the past three decades. But the forces of geopolitical fragmentation—including competing systems for cross-border payments—threaten to make the world poorer and more dangerous.

In a speech on Tuesday, IMF Managing Director Kristalina Georgieva called for a new public payment system to connect various payment systems and counter fragmentation of the international monetary system accelerated by Russia’s invasion of Ukraine.

Parallel payment systems: Some countries may develop parallel payment systems to mitigate the risk of potential economic sanctions, while private digital money providers are promising cheap cross-border payments, but often within a closed network of users, Georgieva told a conference in Zurich hosted by the IMF and Swiss National Bank.

“These ‘payment blocs’ would only worsen the impact of broader ‘economic blocs’—creating new inefficiencies and imposing new costs. This would harm productivity and living standards in all countries.”

A new public payment system, which uses technology to connect various forms of money, including commercial bank deposits but potentially also central bank digital currencies and even some stablecoins, could make payments work for all people, in all countries, Georgieva said.

Question of governance: Questions of governance such as who would oversee these platforms will ultimately be decided by countries, but international organizations such as the IMF, the Bank of International Settlements, and the Financial Stability Board could play an important role, she added.

“Together, we can put the international payment system on a sounder footing—to support the digital world of tomorrow, to foster an international monetary system that can bring greater stability and prosperity for all.”

Watch Georgieva's speech and read a transcript here.

This article first appeared at the IMFBlog, 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.

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