The Rise of Payment and Contracting Platforms (IMF Fintech)

Summary

• The IMF mandate is governed by the central banks and finance ministries of 190 member countries.p.6
• In October 2020, the international community launched the G20 Roadmap to Enhance Cross-Border Payments to tackle costly and slow payment options.p.6
• The proposed XC platform architecture relies on three core layers: settlement, programming, and information management.p.8
• The Bitcoin network has operated uninterrupted for over 1 decade, yet faces challenges around price volatility and non-compliance with AML/CFT requirements.p.8
• The Continuous Linked Settlement (CLS) system maintains key governance arrangements with more than 70 settlement members.p.19

Key insights

1. XC platforms offer a single ledger on which standardized digital representations of central bank reserves in any currency can be exchanged efficiently.p.7
2. The escrow platform model avoids creating a new supranational asset by using tokenized central bank reserves held in escrow accounts.p.10
3. Foreign financial institutions without direct domestic central bank supervision can trade tokenized domestic reserves on XC platforms without direct access to central bank balance sheets.p.12
4. The programming layer uses object libraries as off-the-shelf templates to automate functions like payment-versus-payments (PvP) and custom financial contracts.p.13
5. Automation via code reduces counterparty risk and settlement failures by executing transactions against pre-escrowed funds.p.13
6. The information management layer unbundles compliance checks from settlement, allowing participating countries to retain jurisdictional control over AML/CFT oversight.p.15
7. Encryption techniques allow participants to conduct foreign exchange transactions in a privacy-preserving manner without exposing underlying identities or reservation prices.p.15
8. The XC platform framework can be adapted to domestic financial systems to provide interoperability between tokenized commercial money and tokenized assets as an evolution of wholesale CBDC.p.17