Are central banks souring on interlinking central bank digital currencies to improve cross-border payments? OMFIF’s survey of central banks suggests that the challenges involved in pursuing this approach are more daunting than previously thought.
The commitment to improve cross-border payments is stronger than ever in the official sector. A host of potential solutions are taking shape across both the public and the private sector – with some of the most fruitful work emerging from the intersection of the two.
This year, advancements in technology have instigated remarkably rapid change in the payments industry. OMFIF’s Future of payments 2024 report features an extensive survey of central banks on their concerns and priorities for payments in the near and long term.
High costs are the primary challenge that central banks want to overcome, but there is a remarkable diversity of views when it comes to selecting the best method for doing so. The report examines four of these methods and how different parties are exploring them.
Of these methods are multi-currency CBDC platforms, correspondent banking, tokenisation and instant payments systems, which, in a competitive and fragmented macroenvironment, has the potential to create a bipolar race for global payments innovation.
Once regarded as a niche offshoot of the crypto-asset market, tokenisation has taken root in the official sector’s vision of the future of payments. Although the private sector led the way with stablecoins, the Bank of International Settlements is keen to see the architecture of two tiers of money – central bank money and commercial bank money – replicated in a token-based environment. The BIS envisions that, when connected internationally, this system should form the backbone of the next generation of cross-border payments infrastructure.
But while this model is drawing favour, it relies on the interconnections of wholesale central bank digital currencies – a concept that our survey suggests central banks may be souring on. According to our survey, central banks see instant payments systems as the most promising avenue for the improvement of cross-border payments. Progress concerning the BIS’ Project Nexus on interconnecting instant payments systems has central banks tipping this as the top solution to cross-border challenges.
To investigate this, the report includes insights from the BIS’ Maha El Dimachki and Bank of Thailand’s Wijitleka Marome on their experience with Project Nexus in southeast Asia. Additionally, contributions from technology providers, including Glendy Kam from Tassat and Richard Tang from iASPEC Technologies, highlight the role of innovative solutions to fully realise the potential of instant cross-border payments. Improving cross-border payments is, above all, about removing barriers. This will not happen by accident.
