In an address at Harvard Law School, Jay Shambaugh, the Under Secretary of the US Treasury for International Affairs, lauded India’s Unified Payments Interface system (UPI) for its remarkable strides in fostering international connections, notably with countries such as Singapore and the United Arab Emirates.
Shambaugh articulated that a group of ASEAN nations is harboring ambitious plans to interconnect their rapid payment networks on a multilateral scale. He also underscored that numerous initiatives are already in motion to modernize antiquated payment infrastructures.
He elucidated how payment service providers, system operators, financial institutions, and Financial Market Infrastructures (FMIs) are channeling their investments into operational enhancements aimed at rendering their systems swifter, cost-effective, transparent, accessible, and efficient for both individual users and the broader financial sector.
Shambaugh expounded, “For instance, financial institutions worldwide are currently at various stages of implementing the ISO 20022 messaging standard. This standard is more data-intensive than its predecessors and paves the way for seamless payment processing with expedited messaging, diminished payment failure rates, and various other advantages.”
It was emphasized that India, with its robust bilateral economic relationships, distinguishes itself by forging bilateral connections between its Unified Payments Interface system and those of other nations, notably Singapore and the United Arab Emirates. A cluster of ASEAN countries is harboring the grander vision of interconnecting rapid payment systems on a multilateral scale. In both of these contexts, the ‘G20 Payments Roadmap’ has channeled endeavors toward tangible, short-term advancements.
Of the three key action areas within the G20 roadmap, Shambaugh highlighted payment system interoperability and expansion, ensuring the facilitation of superior payment system connectivity and operational harmonization along key routes. This breakthrough will enable instantaneous transfer and settlement of payments across diverse systems. Monitoring efforts under the G20 Roadmap have begun to exhibit affirmative results in terms of upgrading legacy systems, even those predating the G20’s payment-related efforts.
Shambaugh also shed light on parallel developments, wherein jurisdictions are delving into future states of currency and payments. This includes experimentation with cross-border Central Bank Digital Currencies (CBDCs) and Distributed Ledger Technology (DLT)-based payments. While these innovations have the potential to revolutionize payment systems, Shambaugh recognized the real-world complexities that may arise in the process.
In an ideal scenario, these technologies hold the promise of designing cross-border payment systems that encompass all the advantageous features of traditional systems while introducing additional functionalities. These added features might include cost transparency throughout the payment chain, instantaneous and secure settlements, and programmable payment options. Together, these capabilities could help fulfill the overarching objectives of enhancing efficiency and minimizing risk, as expounded by the US treasury official.
