Page 64 - ITU-T Focus Group Digital Financial Services – Interoperability

ITU-T Focus Group Digital Financial Services
Interoperability

single foreign currency. The most well-known example of a unified scheme with a decentralized settlement
system for a regional currency was the original TARGET in Europe, which linked the Euro RTGS systems of EU
national central banks. Another example is the Sistema de Interconexión de Pagos in Central America and the
Dominican Republic, which uses a decentralized architecture for settling cross-border payments in U.S. dollars .
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With regard to the centralized model of PSI interlinking (or integration), relevant examples are TARGET2 and
EURO1 supporting euro denominated payments in the European Union , the STAR-UEMOA for the West
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African CFA Franc throughout the West African Economic and Monetary Union, and the RTGS system of the
Eastern Caribbean Central Bank (ECCB) for the EC dollar in the Eastern Caribbean Currency Union. Over the past
decade, centralized payment system infrastructures have also been developed regionally, where no regional
currency existed, to facilitate settlement of domestic, regional, and cross-regional payments in more than one
settlement currency (e.g., RAPID in the United Arab Emirates, and CHATS in Hong Kong). Finally, an example of
a unified global system for settlements denominated in multiple currencies is CLS Bank International, which
links the national RTGS systems of the participating jurisdictions/currencies, with a strong reliance on the legal
agreement of the rulebook and the technical standards .
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13. The Southern African Development Community (SADC) regional payment integration project in the
Southern African region captures aspects of a centralized model. The project develops on the International
Payments Framework (IPF) concept to construct a regional payment infrastructure composed of a regional
automated clearing house (ACH) and settlement system . The current architecture consists of the SADC
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Integrated Regional Electronic Settlement System (SIRESS), an electronic central system that facilitates cross
border trade in the SADC region. SIRESS, and excludes domestic inter-bank payments and settlements. It allows
participating banks to settle regional transactions denominated in South African Rand (ZAR) within SADC
countries, on an RTGS basis. The system is operated by the South African Reserve Bank (SARB) on behalf of
the SADC Committee of Central Bank Governors, with SARB also acting as the ZAR settlement bank. It is a safe
and efficient payment/settlement system which reduces the cost to banks since there is no correspondent
bank (intermediary) involved . The project should eventually evolve into a single regional payment settlement
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infrastructure, in tandem with the planned monetary union.

14. The prototypal regional systems for retail payments were multilateral arrangements governed by
service agreements and operational protocols of limited standardization between participating banks
in different countries. For example, TIPANET, which was designed as a cross-border retail payment service
for credit transfers between cooperative banks in Europe and Canada, provided participating members with
somewhat lower cost and faster payment delivery than the usual correspondent banking arrangements of
that time . The widespread growth of credit and debit card payment schemes since the late 1980s provided
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a second wave of regional and cross-regional PSI linkages and integration.
15. Some regional cross-border arrangements have developed across direct (horizontal) linkages between
national schemes. This is the case of the arrangement linking the Interac debit card system in Canada, the
NYCE Payments Network and PULSE systems in the United States, and Union Pay in China for access by the

11 Where there is no single regional currency, regional settlement schemes involve either a currency index composed of a
(weighted) basket of local currencies, a global reserve currency such as the U.S. dollar, or the euro as a reference currency, for
exchange conversion to and from local currencies on each side of the cross-border payments. In some schemes, the global
reserve currency, or a dominant regional currency, is used as the settlement currency.
12 TARGET2, which was launched by the Eurosystem in 2008 and replaced TARGET, is a centralized platform that settles payments
directly between participants – rather than through the infrastructure of the national central banks.
13 The CLS solution has been introduced to reduce principal risk in foreign exchange settlements. CLS, in fact, virtually eliminates
principal risk by settling all payments on a payment-versus-payment basis.
14 The IPF was established in 2009, and is developed and managed by an association of banks and clearing systems from Europe,
Africa, North America, and central and South America. Although less ambitious and prescriptive than the SEPA Framework for
clearing and settlement (see in the text below), it provides a framework for cross-border clearing and settlement for multiple
and single regional currency payments. Like the SEPA framework, the IPF is designed around accepted international operating
and technical standards to permit efficient and secure regional and cross-regional interoperability among participating clearing
infrastructures.
15 As of June 2015, six central bank and sixty-five commercial bank participants from nine SADC Member States (Lesotho, Namibia,
Malawi, Mauritius, South Africa, Swaziland, Tanzania, Zimbabwe, and Zambia) participate in the SIRESS platform.
16 TIPANET was organized twenty years ago before the emergence of global banks that operate in multiple national payment infra-
structures and focus on correspondent banking services as a core business line.

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