Central banks should connect payment systems across borders to limit fragmentation as geopolitical risks grow, a speech published on Oct. 21 by the Bank for International Settlements said.
The speech, “Improving cross-border payments in a changing geopolitical landscape”, said upgrading existing systems and building new ones each have limits. Central banks should choose based on users’ needs, expected benefits and available resources, it said.
The speech examined how central banks can improve international payments while managing technological change and geopolitical risks. It offered policy arguments and examples, without presenting a statistical study, a period of observation or numerical estimates of the benefits.
Existing payment arrangements can sometimes deliver better services through targeted changes, avoiding the expense and risks of building replacements, the speech said. It cited the development of TIPS as an example of improvements achieved through changes to existing infrastructure.
But older systems can reach a point where further adjustments cannot overcome their limitations, the speech said. New systems may then be needed, with technological advances potentially making those alternatives possible.
Central banks should keep different technological options open while concentrating on practical improvements in efficiency, the speech said. It called for shared standards, international cooperation and systems capable of working with several technologies.
The Eurosystem seeks to improve payments while retaining control over its infrastructure and preserving the role of central bank money, the speech said. Taking part in new projects helps it test technologies, shape international standards and protect financial stability and monetary sovereignty, it said.
The speech cited the Eurosystem’s Appia initiative, which explores distributed ledger technology, a way of recording transactions across a shared network. The initiative also examines tokenisation, the representation of assets as digital tokens, alongside central bank money, it said.
Appia seeks to identify problems that new technology can resolve while retaining the public functions of central bank infrastructure, the speech said. It favours connections and shared standards so that Europe can help shape future systems, it said.
Payment networks work better and withstand disruption more effectively when participants share rules, message formats and arrangements for running them, the speech said. Central banks should support connections between countries’ systems to avoid separate regional networks, it said.
New technologies can improve international transactions, but widespread use depends on confidence in their legal foundations, operations and management, the speech said. International cooperation can help establish shared requirements for security, reliability and financial stability, it said.
Joint work under the G20 Roadmap has shown that authorities can improve payments by agreeing on priorities, the speech said. It cited the work led by the Financial Stability Board and the Committee on Payments and Market Infrastructures on system connections, data standards and regulatory coordination.
