IMF Managing Director Kristalina Georgieva called Tuesday for the modernisation of the cross-border payment system by using digital platforms, arguing that this would reduce the risk of a fragmented global economy.
Speaking at a conference in Switzerland, Georgieva stressed that the international system -- which allows for the movement of capital between countries -- faces major challenges, starting with significant costs.
The head of the Washington-based crisis lender pointed to remittances sent by immigrants to their families.
"The average cost of a transfer is 6.3 per cent. Which means that some $45 billion per year are diverted into the hands of intermediaries" instead of going directly to the recipients, who include "millions of lower-income households," Georgieva said.
Another major risk is "fragmentation," she said, noting the Russian invasion of Ukraine has caused "not only tremendous human suffering but also a global economic shock and a sharp increase in the risk of a 'new Cold War.'"
The temptation is for some countries to develop parallel payment systems to offset the risk of potential economic sanctions.
But these potential "payment blocs" would only worsen the impact of the development of new "economic blocs," with additional costs, Georgieva warned.
"We must modernise the international payment system," she said, pointing out that digital platforms have shown "great promise" in connecting and regulating payment systems in a more secure and efficient way.
"My bank in Washington might exchange my $10 for a digital token -- which is then transferred via a platform to a Swiss payment provider who credits the wallet of my friend in Zurich. This is the equivalent of sending a $10 bill via mail -- but at maximum speed and safety, and minimal cost," Georgieva said.
For the IMF, new platforms could be a source of innovation -- provided they are well designed and regulated. They must also be compatible with countries' policy objectives.
A study from the lender, published Tuesday, "shows that crypto assets might be used to circumvent capital flow management measures, undermining the stability of domestic economies and the global system."
Citing the study, Georgieva said: "That is why we are calling for comprehensive and coordinated global regulation in this area."
One of the challenges the IMF faces is to develop tools that automatically detect risks and irregularities in capital flows.
