Building the Payment System of the Future: How Central Banks Can Improve Payments to Enhance Financial Inclusion

The Evolution of Payments from Cash to Cryptocurrencies Payment systems sit at the heart of modern economies.18 They consist of “instruments, procedures, and rules for the transfer of funds between or among participants” as well as a set of operational entities that facilitate these transfers.19 Central banks are one such entity which facilitate the use of payment systems by serving in three major. [...] 25 For example, in 2014, the Bank for International Settlement (“BIS”) Committee on Payments and Market Infrastructures (“CPMI”) and the World Bank Group formed a task force on Payment Aspects on Financial Inclusion (“The PAFI Taskforce”) to examine “how payment systems and services affect financial inclusion efforts.” THE WORLD BANK GRP., Payment Aspects of Financial Inclusion (PAFI) (Sept. [...] The South African Reserve Bank, for instance, is reviewing the South African National Payment System Act of 1998.76 In doing so, the Bank is proposing changes that would allow non-bank financial institutions to issue e-money and perform clearing and settlement of e-money transactions without the need to partner with a bank.77 The People’s Bank of China (“PBOC”) has established a centralized paymen. [...] CROSS-BORDER PAYMENTS AND REMITTANCES Cross-border payments123 and remittances have increased steadily over the past three decades in the context of greater global migration.124 Although efficient remittance services are conducive to the financial inclusion of low-income migrants,125 the status quo of cross-border payments and remittances are regressive and inefficient.126 This results in a huge t. [...] In 2019, the Bank of Canada and the Monetary Authority of Singapore successfully performed the first blockchain cross-border payment using their respective CBDC prototypes,139 with the Bank of England joining the next phase of this experiment.140 Though these pilots have completed several stages,141 there is still much more work that needs to be done to assess the tradeoffs involved in CBDC.