A dedicated GCC cross-border and/or multi-currency (CBMC) system is expected to go live by later this year. The forthcoming Gulf Cooperative Council RTGS system (GGC-RTGS) will settle payments in the currencies of the Gulf region countries, the Bank for International Settlements (BIS) noted in its quarterly review.
Cross-border payments are generally slower, more expensive and more opaque than domestic ones. They tend to flow through the so-called correspondent banking network, where chains of banks work to get funds from the payer to the payee. Replacing the payment chains (or parts thereof) with dedicated cross-border and/or multi-currency payment systems is one of the ways to potentially improve cross-border payments. Cross-border and multi-currency payment systems have the potential to make cross-border payments faster, cheaper and more transparent.
According to BIS, currently, there are about half a dozen multi-currency cross-border systems in operation and two projects under way. They fall into three groups, based on the services offered: cross-currency, choice of currency and PvP (payment versus payment) arrangements. Cross-currency service allows the payer to be debited in one currency and the payee to be credited in another. The projects under way are the Gulf Cooperative Council RTGS system (GGC-RTGS) and Directo a México ..
The forthcoming GCC-RTGSwill settle payments in the currencies of the Gulf region countries. The central banks will convert the currencies based on FX rates set at the start of the business day. The fact that the GCC countries peg their currency to the US dollar alleviates FX risk. Based in one of the GCC countries, the Gulf Payments Company will operate the system, BIS noted..
A number of new cross-border systems are expected to be launched in the early 2020s. Beyond numbers, cross-border systems are also extending in scope. Until now, most of the implementations or augmentations have focused on wholesale payments and thus involve RTGS systems. Future projects are increasingly focused on retail payments. For instance, the SADC-TCIB system, expected to go live in 2020, is geared towards remittance payments across a number of African countries. , a proposed payment infrastructure for Nordic area countries, will first link automated clearing houses and then retail fast payment systems. Sweden is planning to leverage the pan-European retail fast payment system (TIPS) to settle its domestic retail payments. Finally, new peer-to-peer technologies also hold promise with a view to easing cross-border frictions.
Globally, the US dollar remains the most common invoice currency, and for many markets, such as oil and other commodities, prices are quoted in USD.
Safe and efficient CBMC systems can serve as public goods. These systems can increase competition in the cross-border payments market. This can help contain the potential monopolistic powers of (existing or future) closed-loop or peer-to-peer arrangements. CBMC systems can also provide an alternative to the current correspondent banking setup for cross-border payments. This can be especially relevant if the decline in correspondent banking relationships continues.
However, BIS noted, there are a number of challenges in setting up CBMC systems, which calls for planning and coordination. The public and private sectors both need to step up their game if payments are to flow across borders safely, efficiently and quickly - giving us payments without borders.
