The Bank of Canada (BOC), the Bank of England (BOE) and the Monetary Authority of Singapore (MAS) released the report titled “Cross-Border Interbank Payments and Settlements”. The study tackles existing challenges and issues that arise when undertaking cross-border payments and settlements. The group of commercial banks, led by HSBC, assisted the MAS in conducting the research. By bringing together different countries and institutions, the methodology was designed to improve coordination and perspective in this area.
The banks identified the following key challenges in this are the lack of transparency regarding payment status, visibility and certainty of outcome, limited availability of cross-border payment services, the time taken for payment processing, high costs, and other challenges associated with legacy payments infrastructure across networks and central banks and commercial banks.
Thus, the study identifies that“…a more fundamental paradigm shift to address these challenges in a more holistic way, enabled by new technology platforms,” is more than needed.
Concretely, three models have been proposed to improve the overall situation regarding the cross-border payments. While the first two models are based on the traditional banking system, the third model advocates for the issuing of a wholesale central bank digital currency.
For instance, each central bank issues its own digital currency against its domestic currency. Also, these digital currencies are issued to the participating banks in their respective country. Thus, central banks will enter an agreement allowing each other to operate in their own jurisdiction.
One of the conclusions argues that the potential solution to expensive and time-consuming cross-border payments lies in,
“…moving cross-border payments away from existing correspondent banking channels and into new rails, these models help to overcome problems of multiple intermediaries, fragmented standards and poor availability”.
While this report provides only a starting point for further analysis in this area, it is refreshing to see that conventional institutions such as central banks, open the door for digital currencies to have a more active role in improving the cross-border payments system.