Page 38 - ITU-T Focus Group Digital Financial Services – Interoperability

ITU-T Focus Group Digital Financial Services
Interoperability

The Oversight of Payment Systems

A. The critical role of payment systems in contemporary economies

7. To the extent that expanding production and exchange in a market economy requires an increasing
interconnection of various, and usually anonymous, decisional units, economic development rests crucially
on infrastructures that make those interconnections efficient and reliable. In contexts where many decisions
are taken by multitudes of heterogeneous agents, a set of efficient and reliable infrastructures, governed by
clear and enforceable rules, is necessary to ensure that transactions are carried out within the terms and
conditions agreed to by their originating counterparts. Interconnecting the elements of the infrastructures
becomes more essential as modern communication and information technologies make markets independent
of specific physical locations. Especially where exchange involves agent commitments to future obligations – as
is typically the case with financial contracts – elements of infrastructures, such as the legal system and contract
enforcement mechanisms, must be in place to provide trading counterparts with sufficient reassurance that
commitments are fulfilled in accordance with their agreed upon terms and conditions.

8. Payment system infrastructures determine the efficiency, safety, and effectiveness with which transaction
money is used in the economy, and the risks associated with its use. They contribute fundamentally to the
general economic welfare of the society, by underpinning the public’s confidence in money, and by allowing
its use, production, investment, commerce, and finance. Efficient, safe, and effective payment systems reduce
the cost of exchanging goods and services, and are indispensable to the functioning of the interbank, credit,
securities, and capital markets, as well as to the implementation of efficient monetary policy. Weak payment
systems, on the other hand, may severely affect the stability and developmental capacity of an economy; its
failures can result in inefficient use of financial resources, inequitable risk sharing across the agents, ineffective
transmission of monetary policy impulses across the economy, actual losses for participants, and loss of
confidence in the financial system and of public trust in the very use of money.

9. Payment systems are designed specifically to transfer monetary assets in order to complete transactions
originating in all segments of the financial system, as well as in the markets for goods and services. They
are highly organized structures, typically involving high degrees of interconnection between different technical
infrastructures and among large numbers of entities and individuals.
10. In recent years, many countries have embarked on programs to reform and modernize their payment
systems. Policy makers are thus faced with the formidable task of how best to design a country’s payment
system within fast-changing technological and institutional environments, e.g. the increasing importance
of non-banks in the payment system and the emergence of new technologies, like virtual currencies and
distributed ledger technology. These tasks become increasingly complex as competition and innovation
constantly push to the limit the search for better combinations of efficiency, safety, reliability, operational
continuity, and system integrity in the provision of payment services to larger numbers of users and institutions.

B. Payment systems need oversight
What is oversight?

11. Because of the central role of payment systems just discussed, failures to transfer liquidity may affect the
performance of every sector of the economy. Moreover, because all segments of the economic and financial
system link to the payment system, in order to complete the money transfer leg of all the transactions they
originate, major failures in one part of the system to complete the money leg of the effected transactions can
feed through the payment system – along connectivity channels, interoperable payment platforms, interrelated
institutions, and interlinked financial contracts – and disrupt liquidity transfer within the overall economy.

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