It’s going to be a long hot summer in cross border payments

In the world of global finance, a very compelling race is underway just in time for summer. It’s one that will shape the future landscape of cross-border payments. Just as you were preparing for your summer vacations, the Bank for International Settlements and seven other central banks have unveiled Project Agorá. Now, the stage is set for a transformative journey into the realm of tokenization and digital assets.

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This initiative seeks to tokenize wholesale central bank money and commercial bank deposits on programmable platforms, heralding a new era in international payments. Make sure to pack a snorkel. The waters are deep.

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As we dive into the intricacies of this digital money race, it becomes evident that multiple contenders are vying for supremacy. Keith Bear from the Cambridge Centre for Alternative Finance foresees a landscape where stablecoins, central bank digital currencies (CBDCs), and tokenized deposits coexist, each offering its unique advantages.

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Yet, the real competition lies between central banks and the private sector, particularly commercial banks and fintech companies, challenging the dominance of traditional players like Swift in global financial messaging. Another smaller player on the horizon will be credit unions, as one of their key vulnerabilities is the inability to transact overseas.

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Project Agorá emerges as a potent force challenging Swift’s hegemony in cross-border payments. By combining tokenized messaging and settlement on a unified ledger, it seeks to streamline international transactions, eliminating delays and uncertainties that are part of traditional systems. However, this race lacks clear teams, with commercial banks simultaneously exploring Swift’s experiments, central bank projects, and their own stablecoin initiatives.

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Industry sentiment regarding the outcome of this race is diverse, with opinions split on the eventual victor. While some believe global central banks with CBDCs will emerge triumphant, others favor commercial banks with stablecoins. Swift’s enduring stability earns it a significant share of the vote, though skepticism persists regarding its future relevance in an evolving landscape.

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Despite the uncertainty, the importance of cross-border payments cannot be overstated. With the global economy increasingly interconnected, the need for faster, cheaper, and more transparent international transactions grows ever more pressing. Innovation in this space holds the key to unlocking the $250 trillion cross-border payments market, driving prosperity and facilitating global trade.

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Technological advancements, from real-time payment rails to blockchain, offer promising avenues for reducing friction in cross-border transactions. As businesses grapple with the complexities of multicountry and multicurrency environments, optimizing cross-currency workflows becomes paramount. The quest for seamless, secure, and instant settlement in cross-border transactions represents the pinnacle of innovation in this domain.

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Who will win the cross-border payments race? In a small LinkedIn poll conducted by The Bank, 33 percent said that it would be global central banks with CBDCs, 13 percent that it would be commercial banks with stablecoins, 40 percent thought that Swift will be involved, and 13 percent predicted that whatever happens, Swift will be out of the picture. It’s complicated. But in the chaos, one or two winners will prevail.

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As global expansion and payments innovation take center stage, businesses in all categories are getting ready to capitalize on emerging opportunities. With each stride towards a more interconnected world, the vision of frictionless cross-border transactions edges closer to reality, promising a future where borders cease to be barriers, and opportunities abound for all.

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About the Author

Howard Davidson is the CMO of Almond FinTech

Almond FinTech is a B2B fintech company transforming cross-border payments by empowering financial institutions and their customers with the best possible rates and near-instant FX settlements across all corridors globally. With Almond technology, institutions can guarantee fast, affordable, and transparent cross-border transactions. Finally.