Trust bridges and money flows

Tobias Adrian, Rodney Garratt, Dong He and Tommaso Mancini-Griffoli

No 1112, BIS Working Papers from Bank for International Settlements

Abstract: Cross-border payments are expensive, slow, and opaque. These problems reflect multiple frictions, many of which boil down to limited trust among counterparties. Trust plays a central role in exchanging credit-based money. End users need to trust the issuers of money, and issuers must trust users to satisfy financial integrity requirements. Transactions are possible only where trust links exist. Interoperability between different forms of money can thus be conceptualised as the network of trusted links necessary for transactions. Traditionally, across borders, trust links involve exclusive bilateral credit relationships among correspondent banks. However, the fixed costs required to build these links foster an expensive and concentrated system. This paper interprets different payment arrangements in terms of the implied trust structures. It discusses how the tokenisation of money alters trust links and allows for a potentially more efficient market structure to exchange money. The paper ends with a suggested global marketplace to trade tokenised money directly across borders.

Keywords: cross-border; payments (search for similar items in EconPapers)
JEL-codes: E42 E51 E58 F31 G28 O32 (search for similar items in EconPapers)
Date: 2023-07
New Economics Papers: this item is included in nep-ban, nep-mon, nep-pay and nep-soc
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