Summary: The article compares different options for cross-border payments including correspondent banking, fintechs, CBDCs, Bitcoin, and stablecoins, analyzing their mechanisms, pros, cons, and ability to provide fast, inexpensive international money transfers.
What cross-border payments are:
- Transactions between parties in different countries and currencies.
- Includes retail (P2P) and wholesale (bank-bank).
How correspondent banking works:
- Uses intermediary banks to facilitate currency exchange and settlement.
- Relies on nostro/vostro accounts between banks.
Pros and cons of correspondent banking:
- Well-established but expensive, slow, cumbersome.
How fintechs facilitate payments:
- Leverage direct access to settlement systems, fewer intermediaries.
- Faster and cheaper than traditional banking.
Pros and cons of fintechs:
- Convenient, gaining market share. But liquidity and regulatory issues.
CBDCs for cross-border payments:
- Enable fast settlement between CBDC systems.
- But concerns around privacy and financial stability.
Pros and cons of Bitcoin:
- Fast, inexpensive, outside money. But volatility, liquidity issues.
Pros and cons of stablecoins:
- Price stability, efficient. But oligopolies, frozen transactions.