Banking News

BIS report for G20 acknowledges role of global stablecoins to enhance cross border payments, but longer term

G20

Earlier this week, the Bank for International Settlements (BIS) published a report on enhancing cross border payments. It’s one of the first times that the potential advantages of global stablecoins have been acknowledged. However, the BIS reviewed several strategies or building blocks to improve payments. New technologies such as central bank digital currencies (CBDC) and global stablecoins were just one of five areas. Compared to the other four building block areas, the report considers new technologies as longer term solutions.

The paper is one piece of the response to the G20, which has made improving cross border payments a priority. This week’s report focuses on the building blocks in advance of drawing up a roadmap, which is due in October.

Of the five building block areas outlined, two relate to collaboration and regulation. The three implementation areas include enhancing existing payment systems, improving data quality and market practices, and finally exploring the role of new payment infrastructures such as CBDCs and stablecoins.

However, the report categorizes CBDCs and stablecoins as a longer term bet. It states: “the building blocks in focus areas A to D are more likely to improve cross-border payments in the short to medium term, while focus area E has a longer-term perspective.”

In assessing the risks, new technologies were separated because of the potential for systemic risks and disruption. For global stabelecoins, the risks typically highlighted for Libra were raised. These include implications for monetary policy, financial stability, currency sovereignty, and the risk of disintermediation of banks. And then there’s the operational risk because the technology has not been tested at very large scales.

The global stablecoin umbrella included JPM Coin and Fnality in addition to Libra.

Regarding CBDCs, the building block suggested that an international dimension should be factored into current CBDC design works. It’s no coincidence that the BIS and six major central banks are sharing their learnings.

One of the features of the report was an analysis of SWIFT payments and where the bottlenecks are. If you speak to someone from SWIFT, they will say the messaging is fast and the bottlenecks are on the bank side. The BIS report confirms this. It identified frictions as different timezones and bank operating hours combined with legacy batch processing, which slows things down. And the other major impediment is compliance.

Of the 19 building blocks, three were directly related to compliance. A fourth block, cross-border payment service levels, is impacted by compliance. A compliance holdup makes a good excuse for banks that are tardy, deliberately or otherwise.

Although AI and messaging tools like JP Morgan’s IIN can help with the process, compliance is a natural impediment to speed. 


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