Today the Financial Stability Board published a status report on the progress towards improving cross border payments. The report included additional actions on stablecoins that might impact Diem. Separately, concrete targets have been set, including having a global average cost of retail payments to be no more than 1% with no corridors higher than 3% by the end of 2027. And the FSB published industry feedback which highlights challenges ahead.
In response to a G20 mandate, last July, the BIS outlined 19 building blocks towards improving cross border payments across four dimensions: cost, speed, access and transparency.
One of today’s documents reviews the status of these 19 buildings blocks, two of which relate to digital currency, specifically stablecoins and central bank digital currency (CBDC).
Stablecoins for cross border payments
Today the FSB announced that the Committee on Payments and Market Infrastructures (CPMI) should consider whether “well-designed global stabelecoin arrangements” could enhance cross border payments. The deadline is December 2022. It’s unclear whether this means that no global stablecoin should launch until then, such as Diem (formerly Libra).
This follows the publication of two major reports on stablecoins in the last few weeks, one by the BIS and IOSCO, and the other by the FSB. However, these both emphasized regulation.
In May, Diem moved from Switzerland to the United States and appeared to be ramping up for launch. But it still has regulators concerned. Last week the head of the BIS outlined potential policy responses. However, he also stated that Diem might soon go live.
JP Morgan highlights challenges
Additionally, today the FSB published feedback from a consultation. Responses from JP Morgan and SWIFT highlighted the challenges ahead in tackling cross border payment issues with current infrastructures. JP Morgan says it processes $7 trillion in payments globally, so it knows what it’s talking about.
The bank has some concerns about target setting because it believes these address symptoms rather than causes. For example, it says high costs are often because of business practices, regulatory requirements and a lack of visibility at recipient banks. And speed issues frequently relate to the sender providing insufficient data about the recipient. SWIFT’s response made similar points.
In terms of realistic timelines, JP Morgan held up Europe’s SEPA as an example. It took eight years to go from concept to initial implementation, and more than twenty years later, it’s still evolving. And that’s within a harmonized region.
JP Morgan is also concerned about unintended consequences. Speed could result in higher levels of fraud. It highlighted the recent rise in authorized push payment fraud where scammers trick people into sending them money.
