Copyright Page
©2022 International Monetary Fund
WP/22/217
IMF Working Paper
Monetary and Capital Markets Department
A Multi-Currency Exchange and Contracting Platform
Prepared by Tobias Adrian, Federico Grinberg, Tommaso Mancini-Griffoli, Robert M. Townsend, and Nicolas Zhang
Authorized for distribution by Tobias Adrian
November 2022
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: Cross-border payments can be slow, expensive, and risky. They are intermediated by counterparties in different jurisdictions which rely on costly trusted relationships to offset the lack of a common settlement asset as well as common rules and governance. In this paper, we present a vision for a multilateral platform that could improve cross-border payments, as well as related foreign exchange transactions, risk sharing, and more generally, financial contracting. The approach is to leverage technological innovations for public policy objectives. A common ledger, smart contracts, and encryption offer significant gains to market efficiency, completeness, and access, as well as to transparency, transaction and compliance costs, and safety. This paper is a first step aiming to stimulate further work in this space.
| JEL Classification Numbers: | E5; E41; G15; F30 |
| Keywords: | Cross-border payments, multilateral platforms, digital money, CBDC, programmability, encryption |
| Authors’ email addresses: | tadrian@IMF.org fgrinberg@IMF.org tmancinigriffoli@IMF.org rmtownsen@mit.edu nxyzhang@mit.edu |
| JEL Classification Numbers: | E5; E41; G15; F30 |
| Keywords: | Cross-border payments, multilateral platforms, digital money, CBDC, programmability, encryption |
| Authors’ email addresses: | tadrian@IMF.org fgrinberg@IMF.org tmancinigriffoli@IMF.org rmtownsen@mit.edu nxyzhang@mit.edu |
Title Page
WORKING PAPERS
A Multi-Currency Exchange and Contracting Platform
Prepared by Tobias Adrian, Federico Grinberg, Tommaso Mancini-Griffoli, Robert M. Townsend, and Nicolas Zhang 1
Contents
1. Introduction
2. X-C Architecture and Design
2.1 General Description
2.2 X-C’s Architecture
2.3 X-C as a Dynamic Ledger for Contracting
2.5. Contracts’ Governance: “Supervised Open Contracting”
3. Compliance, Data, and Privacy
Highlights
3.1. Privacy in Digital Payment Systems: Separation of Roles and Dedicated Cryptographic Schemes
3.2 : Sharing Identities and Information Across Jurisdictions
3.3. Capital Flow Management Measures
4. Markets and Contracts for FX
Highlights
4.1 Currency Exchange-Market Illiquidity and Hedging Contracts
4.2 Market Design: a Centralized Multi-Currency Market
4.3 Hedging Risks: Forward and Risk Sharing Contracts and Markets
5. Policy Design and Implementation in X-C
6. Conclusions
References
BOXES
Box 2.1 How do CEs compare with other payment instruments?
Box 4.1. Auctions, smart contracts, and pricing liquidity needs
Box 4.2. A Hybrid Model with borrowing, lending, ex-ante insurance, and private information
Box 4.3. Concealing histories
FIGURES
Figure 2.1. CE issuance and cross-border
Figure 2.2. Cross-border payment using X-C.
Figure 2.3 Cross-border payments using correspondent banking
Figure 2.4. Hash Time Lock and Commitment, guaranteed instantaneous trade and settlement
Figure 2.5. Smart contracts, cryptography, and mechanism design.
Figure 2.6. X-C as a protocol stack
Figure 3.1: Delegating verification using zero-knowledge proofs
Figure 3.2: Extending Amplus’ Identification Scheme with Encrypted Certificates
Figure 4.1. Pairwise trade
TABLES
Table 2.1. Alternative types of monies as payment instruments
The authors would like to thank Majid Bazarbash, Pamela Cardozo, Martin Cihak, Max-Sebastian Dovi, Kelly Eckhold, Dong He, Annamaria Kokenye, Kieran Murphy, Julia Otten, Adina Popescu, Asad Qureshi, Herve Tourpe, as well as seminar participants at the Bank of England, BIS, ECB, MIT, University of Minnesota, and Stanford University for discussions and for their comments and suggestions. Remaining errors are ours. The views presented here do not necessarily represent the views of the IMF, its Executive Board, or IMF management.