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Trust Bridges and Money Flows: A Digital Marketplace to Improve Cross-Border Payments
Author:
Mr. Tobias Adrian
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https://orcid.org/0000-0001-9379-9592
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Mr. Rodney Garratt
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Mr. Dong He
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, and
Mr. Tommaso Mancini Griffoli
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Series:
Fintech Notes
Volume/Issue:
Volume 2023: Issue 001
Language:
English
Publication Date:
03 Mar 2023
DOI:
https://doi.org/10.5089/9798400227073.063
ISBN:
9798400227073
ISSN:
2664-5912
Pages:
37
Keywords:
cross-border payments; cross-border payment; tokenized money; liquidity swap lines; money flow; Tokenized money; issuers of money; marketplace model; trust relationship; Currencies; Digital currencies; Currency markets; Correspondent banking; Global
Legal-disclaimer:
Fintech Notes offer practical advice from IMF staff members to policymakers on important issues. The views expressed in Fintech Notes are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Cross-border payments are expensive, slow, and opaque. These problems reflect multiple frictions, many of which boil down to limited trust among counterparties. Trust plays a central role in exchanging credit-based money. End users need to trust the issuers of money, and issuers must trust users to satisfy financial integrity requirements. Transactions are possible only where trust links exist. Interoperability between different forms of money can thus be conceptualized as the network of trusted links necessary for transactions. Traditionally, across borders, trust links involve exclusive bilateral credit relationships among correspondent banks. However, the fixed costs required to build these links foster an expensive and concentrated system. This paper interprets different payment arrangements in terms of the implied trust structures. It discusses how the tokenization of money alters trust links and allows for a potentially more efficient market structure to exchange money. The paper ends with a suggested global marketplace to trade tokenized money directly across borders.
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Cover FinTech Notes
FinTech Notes
ISSN:
2664-5912
Publisher:
International Monetary Fund
Volume 2023: Issue 001