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It is the belief of the Financial Stability Board (FSB) that cross-border transactions should be reduced in price, but this will only be sorted by solid public-private cooperation, its new chair has said.
There are unfortunately still many payment corridors all over the world that face incredibly high costs and considerable delays, Klaas Knot, the FSB chair acknowledged while speaking at a virtual event on free trade in Africa.
A recent 2021 report by the World Bank found that the fee for sending $200 in remittances from Tanzania to neighbouring Uganda was 23 percent of the value for a Ugandan migrant. “I cannot begin to imagine giving up nearly a quarter of my income every month just to send that money home to my family,” said Knot, who took up the role in December.
“But barriers like these are the reality for many people. And it is not just the cost of cross-border payments,” said Knot, who is also governor of Der Nederlandsche Bank, the Dutch central bank. “These types of payments are often also slow and not transparent, and then there's the fact that they are not fully accessible for all.”
He added: “A lot of what we do daily involves crossing borders. From sending an email to someone abroad, to meeting with you virtually right now. It is time that our money also flows more easily across borders.”
Remittance costs vary globally. For example, the World Bank found in 2020 that average remittance costs are the lowest in South Asia (at 4.9 percent in 2020), while Sub-Saharan Africa has continued to have the highest average cost of 8.2 percent.
As for Europe and Central Asia, numbers also vary. Russia is the lowest-cost sender of remittances globally, with the cost of remitting from the country falling from 2.1 percent to 1 percent during the COVID-19 pandemic.
Within the region, the differences in costs across corridors are substantial: the highest costs for sending remittances were from Turkey to Bulgaria, while the lowest costs for sending remittances were from Russia to Georgia.
There are four key barriers to cross-border payments, according to Knot and the FSB: the cost; the speed; the transparency; and the inclusion.
To address these four barriers, the FSB has developed a roadmap to enhance cross-border payments. “We have done this together with our partners, most notably the Committee on Payments and Market Infrastructures (CPMI). And this roadmap has been endorsed by G20 leaders, giving it strong political backing from the largest financial centres.”
Politically, remittances have remained a hot topic, even as migration was reduced by the pandemic. For example, in late 2021, US President Joe Biden directed White House staffers to look at how to make remittances easier to access for Cubans living in the United States to send home to their relatives.
Remittances soared during the COVID-19 crisis for some countries as well. Mexico’s remittances, for example, are expected to top $50bn for the first time once 2021′s figures known.
That would surpass almost all other sources of Mexico’s foreign income.
FSB roadmap
The roadmap covers the payments market globally and has a particular focus on remittances.
It recognises that they are a critical source of financing for people in developing countries and that they play an important role in economic growth, Knot said.
The roadmap seeks to deliver the necessary improvements through five focus areas, with cooperation between all stakeholders being essential, whether they are public or private, national or international.
“We will need central banks to improve their core payment systems, allowing the private sector to follow suit,” said Knot.
At the same time, the private sector needs to play a big role in the required improvements when developing new payment systems and arrangements, or when enhancing existing services.
“We will also need the combined efforts of many different types of experts, from payment service providers and system operators to supervisors, regulators, and central banks,” said Knot. “But also from experts outside of the financial sector, like data authorities contributing to streamlining data provision and data sharing.”
So far, the roadmap has remained at a foundational stage, establishing accountability.
Work in 2020-2021 primarily focused on laying the foundational elements for future roadmap actions. A key part of that was establishing specific quantitative targets at the global level that address the challenges of cost, speed, transparency and access faced by cross-border payments.
The targets are due to be made fully operational this year through the development of the implementation approach to monitoring progress toward them.
This year, the FSB’s plans include the development of specific proposals for material improvements of underlying systems and arrangements, as well as the development of new systems.
