Many thanks Kristin, Pablo, and Stefano.
Needless to say, at the IMF we care deeply about well-functioning payment systems, both domestically and across borders.
And we embrace the role of financial innovation, which from the 1980s onward has come in waves that have vastly improved domestic payments in terms of speed, ease, and cost—with remarkably egalitarian effects, bringing tremendous benefits to poor people and poor countries.
While progress has also been made in cross-border payments, it has been uneven, and in too many cases transactions remain too costly and too slow.
Let’s face it: achieving faster progress is hard in our fragmented world where, in the context of stubborn inflation, central bankers must focus on price stability.
Yet, there are at least two important reasons why more efficient cross-border payments are a worthy goal:
- One, restrictions on correspondent banking and high transaction costs limit the economic participation of affected countries, firms, and households and can divert payments to informal channels.
- And two, in a world where cross-border trade in digital services may well hold the keys to the future—think of AI—more efficient cross-border payments can help boost growth prospects.
The good news is that many promising projects are underway to connect national payment systems. Examples include the ECB’s best-in-class TIPS system; ASEAN’s Project Nexus with its hub and spokes; the Southern African Development Community’s TCIB which focuses on small transactions; and the BIS’s Project Agora focused on correspondent banking.
Today, one big question in front of us is whether private sector financial innovation—notably, distributed ledger technology—can help us achieve a systemic transformation of cross-border payments on a global scale.
We don’t know the answer for sure—blockchain is still a small experiment in a vast global payments picture. But it is certainly possible that tokenization and stablecoins—on their own merit and by stoking competition—will “fluidify” global finance, with stablecoins in particular showing potential to make large-value cross-border payments cheaper and faster.
How exactly this will evolve is yet to be seen, but one thing is clear: in a more fluid global financial system, the transmission of risks is faster and the penalty on policy error is larger. Sound regulatory and macro policies become even more important.
And that is what I want to focus on today: the policy requirements for success. I will make three arguments:
- One: tokenization and stablecoins call for an internationally coordinated regulatory policy response—a heavy lift given geopolitical fragmentation.
- Two: stablecoins could make life more complicated for many emerging market and developing countries—calling for larger foreign exchange buffers and strict policy discipline.
- Three: while stablecoins may lower funding costs for a few countries, they will not obviate fiscal heavy lifting—needed also to relieve pressure on central banks as they focus on price stability.
So let me start with financial regulation, where the core challenge is to keep up with financial innovation and prevent problems while also allowing positive change and fair competition to flourish.
New risks call for nimble responses. With tokenization automating margin calls and back-office functions, operational risks transform and reaction times shrink.
And as stablecoins are marketed as the blockchain equivalent of cash, trust is key: trust in redeemability at par in all states of the world. This calls for strict rules on reserve pools to ensure safety and liquidity, ideally harmonized internationally to support a single, recognizable asset class.
