WASHINGTON DC - The International Finance Forum (IFF) and the Bretton Woods Committee just concluded the 30th IFF academic workshop on cross-border payments and the pressing need to make them more effective as outlined in a recent paper titled A Dual Strategy to Transform Cross-Border Payments and written by guest speaker William C. Dudley, chair of the Bretton Woods Committee, former president of the Federal Reserve Bank of New York, and a board member of the Bank for International Settlements.

The other guest speaker was Siddharth Tiwari, vice president of the IFF, former chief representative for Asia and the Pacific at the Bank for International Settlements, and former director of strategy, policy, and review at the International Monetary Fund (IMF), with Gerry Rice - vice president of the IFF and former director of the Communications Department and spokesman for the IMF - moderating the discussion.

The reform of cross-border payments is too slow

While everyone agrees that cross border payments should be less costly, more efficient, safer, and more inclusive, the current regime remains underwhelming - and things are even going backward in many less developed regions. Remittance payments and other related transactions often take several days to go through - and fees are costly. The fragmented nature of this system means that progress on reforms is slow and uneven at best. Cross-border remittances are now worth over USD 1 trillion, but despite this opportunity and the fact that several countries already have relatively effective national payment systems, there is not yet a good international system.

As the world’s largest economy and given the importance of the US dollar as the world’s reserve currency, America’s actions have outsized importance - but the country is lagging behind because of the dominance of credit cards and platforms like Venmo and Paypal - all of which disincentivize the adoption of a national payments system. The European Union is also only slightly ahead despite having a vast single market and single currency, and in China consumers still have little incentive to move away from Alipay and WeChat Pay.

Increased incentives are necessary

For national payment systems to gain momentum and achieve the network effects sufficient for them to become established, there must be a mandate to offer these services - together with attractive incentives that encourage people to use them. This has worked in Brazil, India, and some Southeast Asian countries.

Once the rules and regulations have been set, it is then important for regulators to avoid hindering the development of these new systems. While it is difficult to operate a 24/7, costless system, this could be done if it operates within a country’s central bank.

Much remains to be done

The current system leaves opportunities for fraud and exposure to foreign exchange risks, and most central banks are also not on the technological frontier. There must be common rules agreed upon, along with agreement on who would run and operate a global payments regime. Many consumers are comfortable with the current system, but with more transparency more people would be incentivized to try something new. One reason this happened in a country like Brazil was because the previous payments regime was frustrating and costly for almost everyone.

How far away is the ‘finternet’?

The possible tokenization of financial assets provides many opportunities for instant exchanges and the elimination of fees, so there could be massive social benefits if this can be implemented successfully. But would this happen on the blockchain or some other unified ledger, and would tokens be permissionless or not? And what would one do if something goes wrong? Such questions must be addressed for the ‘finternet’ to take off. The internet is owned and operated by everyone and no one, and it can be managed successfully even without a centralized authority - providing a possible template for a ‘finternet’ featuring safe, instant, cross-border payments globally.

What role might central bank-issued digital currencies play?

The EU and US have taken different directions on central bank-issued digital currencies, with the EU seemingly much more open to the idea. China has also been experimenting with the e-CNY. At the BRICS summit last October, there was talk of constructing a payments regime with tokenized currencies within certain countries, including the issuance of BRICS bonds. That could risk fracturing the global financial system into separate blocs, however. Some countries want to insulate themselves against US sanctions that could impact their use of dollars, although the dollar’s role as the global reserve currency is unlikely to change soon.

How can the international community work together?

Multilateral institutions like the IMF, the World Bank, and regional development banks have key roles to play in any transition from digitalization to tokenization, and the private sector must also be included. Taking Africa as an example, it does not have any single country big enough to lead the entire continent. A unified, continent-wide, instant payments regime would thus be hugely beneficial to Africa’s small businesses and economic development, with multilateral institutions providing technical expertise, funds, and other guidance.

Central banks and other entities that oversee payment systems should also set up advisory committees with the private sector for better communication and so the private sector can provide much-needed technological expertise that central banks and other entities lack.

As a global public good, a fully international payments regime cannot be implemented by any one country or entity alone. Working together will also lead to better outcomes than a go-it-alone approach, although countries’ individual experiences show that there is more than one model that works.

More about this academic workshop: https://events.ifforum.org/2025/02/cross-border-payments-transformation.