By Bassey Udo
The ongoing Russia-Ukraine war has necessitated the creation of a new public payment system that connects various payment systems around the world, the International Monetary Fund (IMF) has said.
The IMF Managing Director, Kristalina Georgieva, who made the proposal said a new payment system would help counter fragmentation of the international monetary systems accelerated by Russia’s invasion of Ukraine.
Georgieva said in a report published on the IMF website that global economic integration supported growth and lifted more than one billion people out of extreme poverty over the past three decades.
“But the forces of geopolitical fragmentation, including competing systems for cross-border payments threaten to make the world poorer and more dangerous.
“Some countries may develop parallel payment systems to mitigate the risk of potential economic sanctions.
“While private digital money providers are promising cheap cross-border payments, but often within a closed network of users.
“These ‘payment blocs’ would only worsen the impact of broader ‘economic blocs’, creating new inefficiencies and imposing new costs.
“This would harm productivity and living standards in all countries,” Georgieva told a conference in Zurich hosted by the IMF and Swiss National Bank.
The managing director said a new public payment system, which uses technology to connect various forms of money, could make payments work for all people, in all countries.
She said the various forms of money include commercial bank deposits, but potentially also central bank digital currencies and even some stable coins.
Georgieva said countries need to work together to build new roads, railways, bridges, and tunnels using public digital platforms to connect payment systems.
“This would make international payments more efficient, safer, and more inclusive. Crucially, it would reduce the risk of fragmentation.
“Indeed, we must think like a mountaineer in three ways: use state-of-the-art equipment, adapt to the existing terrain, and rely on our team.
“First, we must use state-of-the-art equipment, especially new technologies. Which brings me to my second point, just like good mountaineers, we must adapt to the terrain.
“This means building platforms that allow countries to continue pursuing their policy objectives, especially when it comes to capital flows.
“My third point is that mountaineers never climb alone. They rely on their teams and the well-rehearsed reactions and signals to deal with unforeseen situations.
“This approach is essential to modernise the international payment system and mitigate fragmentation. It means, above all, getting governance right,” she said.
Georgieva said questions of governance such as who would oversee these platforms would ultimately be decided by countries.
However, she added that international organisations such as the IMF, the Bank of International Settlements, and the Financial Stability Board could play an important role.
“Together, we can put the international payment system on a sounder footing.
“To support the digital world of tomorrow, to foster an international monetary system that can bring greater stability and prosperity for all,” she said.
Perhaps, the AFREXIMBANK was already thinking ahead of the IMF when it launched a pan-African Payment and Settlement System (PAPSS) that would facilitate transactions under the African Continental Free Trade Area (AfCFTA).
The new payment system to be operated by AFREXIMBANK in collaboration with the AfCFTA Secretariat would ensure effective operation of the system among payment systems to enhance cross-border payments with the Arabs.
The new payment system was unveiled at the signing of a Memorandum of Understanding (MoU) with BUNA, the Arab Monetary Fund (AMF)-owned cross-border and multi-currency payment system.
PAPSS is a centralized Financial Market Infrastructure that enables the efficient flow of money securely across African borders, minimizing risk and contributing to financial integration across the regions.
PAPSS works in collaboration with Africa’s central banks to provide a payment and settlement service to which commercial banks and licensed payment service providers across the region can connect as ‘Participants’.
BUNA is the cross-border payment system owned by the Arab Monetary Fund and aiming at enabling financial institutions and central banks, in the Arab region and beyond, to send and receive payments, in local currencies as well as key international currencies, in a safe, cost-effective, risk-controlled and transparent environment.
PAPSS plans to expand its footprints across Africa with eight central banks, six switches and about 25 of the largest commercial banks on the continent.