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15 September 2023

The Road to the G20 New Delhi Leaders’ Declaration

SUYASH RAI

INTRODUCTION

India has assumed the Group of Twenty (G20) presidency at a time of both crisis and continuity. Even as the world is recovering from the impact of the COVID-19 pandemic, the war in Ukraine has presented a major challenge for the G20. This is not the first crisis that the G20 has had to respond to as a collective. Just fifteen years ago, it emerged as the main group of countries to coordinate responses to the global financial crisis. Over the years, the G20 has been able to respond to crises while continuing dialogue and progress on issues that remain relevant to the future of the global economy. India is well poised to lead this process, especially on digital technology.

India’s position as a large emerging market, its demonstrated capabilities when it comes to creating large digital platforms for social inclusion, and its ability to work with a diverse set of international actors have created a unique confluence of opportunities that can be leveraged during its presidency of the G20.

Each of the essays in this compendium highlights the possibilities of progress and cooperation on the opportunities and challenges posed by technology. On data, the G20 has historically emphasized harmonization of approaches and standards and highlighted the use of data for developmental purposes. India’s robust domestic dialogue on data protection can allow it to provide a balancing framework, where developmental uses of data can be promoted while encouraging the growth of data privacy standards. In his essay on data for development, Anirudh Burman recommends that India should focus on subject areas and aspects of data flows that should remain unfettered, identify frictions such as those around access to data for law enforcement that provide an impetus for restricting data flows, and work toward operationalizing the idea of the free flow of data with trust.

India also has an opportunity to encourage greater international collaboration on countering risks posed by advances in biotechnology. Shruti Sharma writes about how this can be done by continuing the discussions on the One Health approach to improve interagency cooperation on disease surveillance and pandemic preparedness, which is a part of the G20 discussions. She also suggests holding ministerial discussions on biological threats, perhaps expanding the scope of the discussion to focus on diseases that might occur due to human interventions, and leveraging Science 20 (S20) to communicate with health ministers about recent advancements in biotechnology and the associated risks and to formulate specific recommendations and implementable suggestions for the health ministers to take forward.

India can also leverage its technological approach toward public health issues by continuing the ongoing G20 discussions on building resilience, harmonizing protocols, and creating the necessary conditions for more effective pandemic preparedness. Arjun Kang Joseph writes in his essay on digital health how this will require some important interventions related to financing, data, and information-sharing systems. India can use its own experiences in building digital public health infrastructures to help develop mechanisms for these interventions.

Financial technology, especially for cross-border payments, has been another consistent priority for the G20. Central bank digital currencies (CBDCs) can potentially be considered an instrument for solving the inefficiencies of cross-border payments. Priyadarshini D. suggests an expansion of the G20’s work on CBDCs to develop mechanisms to share learnings from different jurisdictions and to make substantive progress toward the use of CBDCs for cross-border payments.

G20 members have emphasized the need to address issues in cross-border payments, such as cost, speed, transparency, and access. The Financial Stability Board (FSB) has already published a roadmap to address these issues. Suyash Rai writes that as a country that has created population-scale technologies like the Unified Payments Interface (UPI), India can use its G20 presidency to coordinate international efforts toward developing interlinking arrangements allowing payment service providers across different systems to transact with each other without intermediation. In addition, he suggests, India should lead efforts to increase regulatory coordination, especially regarding the supervision of cross-border service providers, and promote the consistent application of anti-money-laundering/combating the financing of terrorism (AML/CFT) frameworks to reduce regulatory uncertainty.

Each of the essays in this volume, therefore, provides forward-looking, constructive approaches to important priority areas for India’s G20 presidency. While some of the essays, such as the ones on data and CBDCs, highlight the need to collaborate on the development of standards and frameworks, other essays, like the ones on cross-border payments and biotechnology, provide specific implementable steps that India must encourage under its presidency of the G20. A common message of these essays is that these areas require international coordination over a long time. While the G20 presidency provides India an opportunity to showcase its capabilities and ideas, India can, and should, play an important role in contributing toward reforms in these areas well beyond the year of its presidency.
  1. Harnessing Data for Development
  2. Improving Global Health Security by Addressing Biological Threats
  3. Promoting Digital Health to Achieve Universal Health Coverage
  4. Shaping the Agenda on Central Bank Digital Currencies
  5. Enhancing Cross-Border Payment
1. HARNESSING DATA FOR DEVELOPMENT

Data is now a critical factor of production powering the global economy. Innovations in capturing and analyzing data have made it useful for government priorities such as increasing financial inclusion and improving public health. At the same time, economic control over data has made debates over data security and access increasingly contentious.

In this environment, the G20 has emphasized harmonization and collaboration over competition. At successive G20 summits, member countries have declared the importance of promoting the innovativeness of the digital economy (Hangzhou 2016), increasing trust in data flows (Osaka 2019), connectivity and openness (Bali 2022), and using data for development (New Delhi 2023). As India assumes the G20 presidency this year, there is an opportunity to address some of the underlying issues that can stymie ongoing collaboration efforts.

The Indian government has announced that its focus during the G20 presidency will be on the use of data for developmental purposes. This is, to a large extent, due to India’s own experience in meeting developmental goals through the creation of digital infrastructures in the fields of finance, education, and vaccine administration during the COVID-19 pandemic. This developmental agenda is in line with the United Nations’ report on digital cooperation as a way to attain the Sustainable Development Goals (SDGs).

One mechanism through which this developmental agenda is increasingly proposed to be achieved is the use of digital public goods (DPGs). While DPGs are increasingly being sought for use in fields such as finance, public health, and agriculture, the methods by which relevant technologies, standards, and expertise will be shared across borders are still being debated. The role of the government should ideally be to create mechanisms through which DPGs can be exported by their creators in a competitive ecosystem.

In addition, while many DPGs like Aadhaar in India are digital infrastructures, their use should still be subject to market tests. The principles used to regulate infrastructure utilities should also be used to regulate DPGs of this nature. For the G20, this will mean a focus on creating principles for sharing DPGs and working to create the necessary regulatory framework at the same time. The best practices in financial regulation for digital payment infrastructures can be examined and adapted to ensure that DPGs in other sectors are safe and subject to market discipline.

The use of data for development is going to hinge on the question of how data is regulated, especially its flow across jurisdictions. Over the years, G20 countries have expressed their commitment to ensuring the free flow of data. The Bali declaration stated that countries “remain committed to further enable data free flow with trust and promote cross-border data flows.”

However, this commitment to free data flows has been made in the context of increasing localization requirements by countries. More than sixty countries now have localization requirements in some form. Many countries, including India, have articulated their imperatives for data localization in the past. While India’s new Draft Digital Personal Data Protection Bill, 2022 significantly reduces localization requirements, it does not completely cede sovereign regulatory power to localize data in the future. The G20 should, therefore, focus on subject areas and aspects of data flows that should remain unfettered. In addition, the G20 should identify frictions across jurisdictions that provide an impetus for restricting data flows. The current international framework for access to personal data for law enforcement and national security purposes is one such friction, and the G20 should seek to resolve it.

Lastly, any discussion on using data for development or economic benefit will eventually rest on the regulatory standards for data security and data protection. On this aspect, it is in India’s interest to first firm up a domestic framework for data protection. Many parts of how personal data ought to be regulated are increasingly becoming a given—notice and consent requirements, purpose limitations, and data storage requirements.

The idea of the free flow of data with trust exemplifies these standards without naming them. The G20 will have to take a strategic call on how finely these standards ought to be defined. To include both imperatives for data regulation—harmonization and sovereign autonomy—a careful balance will have to be struck. If this balance is skewed, the objective of using data for development will come unstuck.

2. IMPROVING GLOBAL HEALTH SECURITY BY ADDRESSING BIOLOGICAL THREATS

The COVID-19 pandemic has exposed deep fault lines in countries’ susceptibility to infectious diseases and their ability to tackle them. Along with the pandemic, Russia’s war in Ukraine has underscored the importance of addressing biological threats that emerge naturally, accidentally, or deliberately.

Despite the fact that scientists from around the world have said the virus responsible for the pandemic likely originated from natural sources, the controversy surrounding the origin of the pandemic and the recent claim by the U.S. Department of Energy that the pandemic most likely originated from a laboratory leak has made the international community consider the possibility of pathogens escaping from research labs.

Moreover, the war in Ukraine has exacerbated the threat of deliberate weaponization of pathogens. Russia, in fact, has claimed that the United States is funding “military biological activities” in Ukraine in violation of the Biological Weapons Convention (BWC), the first global disarmament treaty that bans the development, production, acquisition, transfer, stockpiling, and use of biological weapons. The United States and Ukraine have categorically denied they are developing biological weapons inside Ukraine.

Although the World Health Organization (WHO) is tasked with tackling naturally occurring infectious disease outbreaks at a global level, there is no dedicated international organization or treaty that covers diseases that result from accidental laboratory leaks. On the other hand, the BWC, unlike other arms control treaties, lacks an independent inspection mechanism to detect violations and a verification protocol to ensure member states’ compliance with the treaty.

This absence of a global mechanism to tackle laboratory accidents and lack of a verification protocol makes it necessary to develop an alternate mechanism, such as initiating discussions within the G20, to generate greater awareness of the need for robust defensive mechanisms to address manmade biological threats, develop a common understanding of biological threats (both accidental and deliberate), and create uniform standards to conduct biological research.

Because the COVID-19 pandemic has been a grave reminder of the implications of biological threats for public health, the G20’s engagement with and discussion around improving global health security can be leveraged to discuss and strategize ways to address biological threats, as elaborated below.

Why is the G20 a relevant forum to discuss biological threats?

The G20, since the Osaka summit in 2019, has been actively involved in discussions around pandemic preparedness. In partnership with the Pandemic Fund secretariat, the G20 health and finance ministers, during the Bali summit in 2022, launched a $1.4 billion pandemic fund to prevent and prepare for the next pandemic. G20 and non-G20 member states and philanthropic organizations have contributed to this fund.

Furthermore, the One Health approach has been one of the constant priorities for G20 member states since 2017. This approach aims to promote intersectoral cooperation between public, animal, and environmental health to prevent future disease outbreaks emerging from natural sources. While naturally occurring diseases remain a constant threat, One Health should also address the possibility of diseases occurring due to laboratory accidents or the deliberate release of pathogens into the environment by nefarious actors.

How can the G20 be modified to discuss biological threats?

The Indonesian presidency of the G20, in collaboration with the One Health Quadripartite, consisting of members from the Food and Agriculture Organization of the United Nations, the United Nations Environment Programme, the WHO, and the World Organization for Animal Health, developed the Lombok G20 One Health Policy Brief.

Building on this legacy, India, under its G20 presidency, has proposed advancing discussions around the One Health approach to promote better interagency cooperation to facilitate disease surveillance and pandemic preparedness for humans and animals.

Therefore, as the G20 president this year, India, through its Principal Scientific Adviser’s Office, should work closely with the One Health Quadripartite to facilitate intersectoral collaboration across plant, animal, and human health. India should further the discussions started under the Indonesian presidency and review priorities for the One Health approach, identify gaps and opportunities in achieving them, and discuss funding mechanisms to support and sustain them.

In addition to working with the One Health Quadripartite, the G20 health ministers’ meeting can be another vehicle to support discussions around biological threats. The G20 health ministers, until now, have called for collaborative action to enhance disease surveillance to strengthen prevention, preparedness, and response to naturally occurring disease outbreaks. Because diseases—whether naturally occurring, accidental, or deliberate in origin—have the potential to disrupt livelihoods and economies worldwide, the scope of these meetings should be widened to focus on diseases that might occur due to human interventions. This, in the long run, will become an excellent way to identify unusual outbreaks in a global context. To achieve this, greater trust and transparency, along with minimum obligations to share critical data, will have to be established to ensure that information is shared in time.

Further, priorities for S20, an engagement group within the G20 that brings together prominent scientists and experts, can include communicating with health ministers about recent advancements in biotechnology and the associated risks. S20, set up in 2017 and led by the national science academy of the country that holds the presidency of the G20, has been actively involved in discussions around global health and pandemic preparedness since its inception. India’s S20 engagement group, with its secretariat at the Indian Institute of Science in Bengaluru, is furthering the goal set by previous G20 presidencies to achieve universal holistic health with an emphasis on the prevention of diseases. It might, therefore, be prudent to expand the scope and participation of this engagement group to include experts from the security community and identify diseases that can result from either laboratory accidents or deliberate acts.

Discussions within this engagement group can then be formulated into specific recommendations and implementable suggestions for the health ministers to take forward at a political level. The health ministers’ meeting at the G20 seems to be an apt venue because most member states have been prioritizing global health in their national agendas. But health ministers of different G20 member states have varied levels of understanding of the implications of biological threats on global health priorities and have implemented different policies for the evaluation, governance, and management of biological risks. The G20 could, therefore, be the right entity to navigate these diversities and put in place information-sharing mechanisms to promote cooperation.

3. PROMOTING DIGITAL HEALTH TO ACHIEVE UNIVERSAL HEALTH COVERAGE

In the lead-up to assuming the G20 presidency, India has made it clear that technological transformation and digital public infrastructure are two of its priorities. This intent was made even clearer with the Indian government’s creation of the G20 Task Force on Digital Public Infrastructure for Economic Transformation, Financial Inclusion and Development. The task force is responsible for mapping India’s digital infrastructure and shortlisting key infrastructure that can be presented within the various G20 tracks for adoption by other countries.

This focus on technological transformation and digital public infrastructure extends to healthcare as well. Prior to the first meeting of the Health Working Group (HWG) in Thiruvananthapuram in January, the Indian government highlighted three priorities for the health track, one of which was “digital health innovations and solutions to aid universal health coverage and improve healthcare service delivery.” The main agenda of digital health during India’s presidency would be the use of technology for accessibility, ease of availability, and affordability in health service delivery.

Before exploring what India can do with its presidency in the field of digital health, there is merit in looking back at the efforts of the HWG during previous presidencies.

What has been the focus of the Health Working Group?

Health is a relatively new focus area for the G20, and digital health even more so. While health risks have been mentioned in earlier leaders’ communiqués (most recently in 2015 and 2016), the HWG was established under the German presidency in 2017.

The Berlin Declaration of the G20 Health Ministers focused on building a shared international agenda on issues such as global health crises management, pandemic preparedness, strengthening health systems, and antimicrobial resistance. It recognized the importance of health data for informing the planning, implementation, and monitoring of health programs and systems strengthening.

In 2018, under the Argentinian presidency, the health ministers’ declaration recognized the importance of training healthcare providers and consumers on the use of e-health tools and encouraged countries to develop and operationalize digital health systems in order to transition to more efficient and effective healthcare delivery systems.

The Okayama Declaration of the G20 Health Ministers recognized that the effective and ethical use of digital health technologies would help in achieving Universal Health Coverage (UHC). The ministers promoted the strengthening of digital health information systems through the use of data and these technologies but also emphasized policy measures and regulations that would protect personal health data.

During Saudi Arabia’s presidency of the G20 in 2020, the work of the HWG largely focused on the COVID-19 pandemic. In addition to pandemic preparedness and response, the other workstreams of the HWG included improving value in health systems, digital health, patient safety, and antimicrobial resistance. In the context of digital health, the HWG emphasized the importance of enabling “building blocks”—such as information technology (IT) infrastructure, equity of access, the policy and regulatory environment, standards and technology, and workforce and institutional capacity—for the success of digital health solutions. The HWG also recognized the potential for digital health during the pandemic and endorsed the creation of a Digital Health Taskforce, which submitted the first G20 report on digital health. The work of this taskforce was also largely focused on how digital health could help in the context of the pandemic.

The Rome Declaration of the G20 Health Ministers mentioned four workstreams: health and sustainable recovery, building One Health resilience, a coordinated and collaborative response to health risks and emergencies, and the accessibility of vaccines, therapeutics, and diagnostics. The value of integrating digital health solutions was mentioned in each of these workstreams.

While there was no declaration of the G20 health ministers during Indonesia’s presidency of the G20 in 2022, the Chair’s Summary tells us that there were three priority issues that were covered: building global health system resilience, harmonizing global health protocols, and expanding global manufacturing and research hubs for pandemic prevention, preparedness, and response.

What can India do with its G20 presidency?

In addition to continuing the various workstreams of the HWG as well as the efforts of the Digital Health Taskforce (though this was focused largely on pandemic management), India could direct its efforts with regard to digital health toward three key areas: financing, data, and sharing of lessons and experiences of countries going through their own digital health journeys.

In addition to investing in enabling IT infrastructure, building digital health architectures requires significant investments and maintaining them incurs significant costs. The governments of many low- and middle-income countries are often not in a position to allocate enough resources to build out these architectures and require financial assistance. India has stated that it will be proactive in representing the Global South—working with the Joint Finance and Health Task Force, India could lead efforts to create a fund to support countries to develop their own digital health architectures. The fund itself could be managed by the Department of Digital Health & Innovation at the WHO, which would be best placed to allocate funds to support countries’ efforts to invest in digital health architectures to achieve UHC.

Health data, a byproduct of digital health architectures, is a tremendously valuable asset for improving public health through its use in optimizing patient care, disease surveillance, research and innovation, and policy and program planning. Given India’s focus on the use of data for developmental purposes, it could look to convene the discussions happening at multiple multilateral forums to build a consensus among the G20 countries on data use and sharing the same in the healthcare sector. At the very least, this consensus could be a commitment from the member countries to create regulatory environments that allow for the sharing of public health data across their borders. A more optimistic outcome would be an agreement on formats and standards to be used for the collection, storage, and use of health data as well as rules for health data protection and sharing. Having interoperable data enables interoperability between different countries’ digital health architectures which in turn results in greater continuity of care for patients and enables medical tourism. Standardized data shared between countries allows for improved disease surveillance and pattern recognition. It also enables international cooperation and coordinated responses to global health risks.

In their efforts to achieve UHC using digital health technologies and architectures, countries have developed a number of models or approaches to digital health. The lessons and experiences gained by one country’s efforts could help inform another about the best way to build out its own digital health architecture. However, the exchange of information or experiences should not just be limited to the technologies used or systems that are built but should also include sharing of information on regulations and enabling policies that have created an environment conducive to the adoption of digital health technologies. In this regard, India could lead efforts to establish a forum for the exchange of these ideas and information within the HWG. Additionally, this forum could be used as a place to discuss and arrive at a set of common principles that should drive the creation and functioning of a country’s digital health architecture.

India’s national digital health mission, the Ayushman Bharat Digital Mission, has had a commendable degree of success in connecting the various stakeholders in the healthcare ecosystem through the use of technology and creating an enabling environment for digital health on a large scale in a country as vast and diverse as India. As India continues to develop its own digital health architecture, it could draw on these experiences to take a leadership role at the G20 in the promotion of digital health as a means to achieve UHC.

4. SHAPING THE AGENDA ON CENTRAL BANK DIGITAL CURRENCIES

While interest in CBDCs has intensified over the past couple of years, there is limited practical experience in issuing and implementing them. Only eleven countries, of which eight belong to the Eastern Caribbean Currency Union, have issued CBDCs—primarily for domestic use. The motivations and contextual references driving interest in CBDCs are not necessarily shared by all countries or regions. CBDCs carry the potential for both benefits and serious risks, many of which are still being studied. Finally, the rationale for issuing CBDCs itself, especially in the context of ongoing and planned improvements to domestic and cross border payments, including real-time or fast payment systems, is not very clear yet, with some asking: Are CBDCs solutions in search of a problem?

Yet CBDCs have been steadily growing in importance. Nearly 114 countries constituting 95 percent of the global gross domestic product (GDP) are exploring a CBDC today. CBDCs could potentially redraw domestic and international financial systems when introduced. For example, depending on their design and implementation, they could lead to disintermediation of the domestic banking sector or fragmentation of the global financial system.

Importantly, CBDCs, particularly in the cross-border context, have also been on the agenda of the G20 countries.

CBDCs and the G20

The G20 has made cross-border payments a priority since 2020 when it set in motion a three-stage process to develop a roadmap to improve this space under the aegis of the Financial Stability Board. The roadmap prepared by the FSB in coordination with several international organizations like the Committee on Payments and Market Infrastructure (CPMI) of the Bank for International Settlements (BIS) identified five focus areas. Four of the five areas deal with improving the existing payments ecosystem. The fifth is exploratory and seeks to understand the role of new payment infrastructures and arrangements in cross-border payments. CBDCs, along with global stablecoins and new multilateral platforms, fall here. The focus areas are, however, largely symbiotic. Progress on improving the existing payments ecosystem will also benefit emerging payment arrangements or infrastructures.

The five focus areas are broken down further into nineteen building blocks—each with specific action items—to help implement the roadmap. Accordingly, the nineteenth building block, which relates to CBDCs, seeks to: (a) explore how CBDCs may improve cross-border payments and (b) provide guidance to domestic CBDC implementations on enabling cross-border transactions.

The opportunity

Representing nearly two-thirds of the world’s population, 85 percent of the global GDP, and 75 percent of the global trade makes the G20 a robust platform to lead discussions and potentially shape the global agenda and outcomes, despite it being an non-treaty-based forum. The significance of the G20, even its very inception, also lies in the inclusion of emerging market and developing economics (EMDEs) based on the recognition of their growing importance and increasing share in the global economy. The current streak of G20 presidencies is particularly notable for involving several EMDEs consecutively, namely the previous, current, and next two presidencies involve Indonesia, India, Brazil, and South Africa, respectively. This provides a significant and sustained role for the developing world to both introduce their perspectives and possibly shape the global agenda.

Most of the G20 countries are already invested in CBDCs. Nearly eighteen of the G20 countries are in an advanced stage of developing CBDCs, seven are in the pilot stage, and almost all have invested new resources in CBDC projects in the past six months.

Cross-border transactions through CBDCs could occur either by giving nonresidents access to domestic CBDCs (either within or outside the issuing jurisdiction) or by connecting the CBDCs with international infrastructure. Interoperability of various (legacy and new) payment systems, as well as international cooperation and coordination are, therefore, essential to both design CBDCs for cross-border use and mitigate risks. Accordingly, as a global coordinating body, the G20 provides an ideal platform to take forward multilateral discussions on CBDCs and offers a significant opportunity for EMDEs’ perspectives to also have a bearing on them.

A possible agenda for 2023

Several action items relating to CBDCs under the roadmap endorsed by the G20 in 2020 have been completed. These include the stocktaking of potential CBDC designs and experiments and options for the access and interoperability of CBDC systems (G20 reports). Some remain. Meanwhile, the roadmap has been updated this year to identify key priorities that will help achieve targets for improving cross-border payments by 2027. The only item relating to CBDCs covered under the updated roadmap is the exchange of information and experiences on including an international dimension into CBDC systems under a forum of interested central banks and international organizations to be convened by CPMI (CPMI Forum). Excluded items are expected to be picked up later when relevant, or continued under other forums.

However, given the nascency of CBDCs and the increasing interest in them—more than two-thirds of central banks might consider issuing CBDCs in the near future—new developments are likely to emerge over the next few years. It is therefore important to remain continuously and consistently engaged on this topic. The timeframe for the CPMI forum runs from February 2023 to 2025, though the frequency with which it will convene and, more importantly, discuss CBDCs is unclear. Accordingly, the forum may:
  • establish a regular and sustained exchange of information on aspects such as CBDC designs, technologies, lessons from experiments and implementations, jurisdictional nuances, and challenges.
  • proactively involve countries or organizations other than G20 on a voluntary basis, beginning with the African Union (AU) as currently the only live issuance of CBDCs by a major economy lies there (Nigeria). This could also provide a meaningful way to engage Africa, which is undergoing a significant digital transformation of its own, even as the AU awaits inclusion as a permanent member of the G20.
  • expand the scope of the forum by engaging the private sector given that CBDCs will need to work with existing, improved, and future cross-border payment systems.
Separately, India has specified CBDC use cases and their macroeconomic implications as a priority under its presidency this year. Mitigating or managing potential macrofinancial risks arising from cross-border CBDC use—like currency substitution and volatile capital flows—could be particularly important to EMDEs. It also requires international collaboration to elucidate and agree upon CBDC design principles and standards from the outset to limit such risks.

International cooperation and coordination—especially to connect CBDCs with each other and with other cross-border payment instruments or infrastructure—is also required to realize the key advantage offered by CBDCs, that is, a clean slate to develop cross-border payments while solving current challenges like high transactions costs, opacity, and lack of access. Moreover, as the G20 reports note, such cooperation and coordination are essential in the early stages of design and development of CBDCs.

Therefore, in addition to exploring macrofinancial risks, the following may also be taken up:
  • Developing common design principles and standards for mitigating or managing potential spill over risks from cross-border use of CBDCs.
  • Developing principles and/or standards for guiding interoperability since CBDCs will need to connect with a heterogenous cross-border payments landscape that includes legacy, improved, and potentially new payments systems like global stablecoins and commercial bank tokenized deposits.
  • Early cross-referencing of other streams of work on improving cross-border payments with the work on CBDCs to avoid reinforcing existing or developing new frictions. This includes cross-referencing the priority themes under the updated roadmap such as use of application programming interfaces (APIs) and interoperability, interlinking of domestic payment systems and aligning cross-border data and messaging standards which will also likely inform the work in CBDCs.
A dedicated multistakeholder working group or task force under the G20 Finance Track, located either under “International Financial Architecture” or “Financial Sector Issues” (which covers cross border payments specifically), could lead the work on the items suggested above. The terms of reference of the working group or task force can evolve and expand over time to reflect the developments in the CBDCs landscape.

Notwithstanding criticism over the lack of concrete outcomes following the global financial crisis and the challenging global context today, the bilateral meeting between U.S. President Joe Biden and Chinese President Xi Jinping in Bali on November 14, 2022, on the sidelines of the G20 summit, and the G20 Leaders’ Declaration at Bali attest to the continued importance of this forum. With the successful transformation of its fast payments landscape, the recent quick rollout of CBDC pilots and the foray into interlinking its fast payments and connecting CBDCs for cross border payments, India is well-positioned to take the lead on the above agenda as the current G20 president as well as contribute meaningfully going forward.

5. ENHANCING CROSS-BORDER PAYMENTS

The experience of retail payments has improved in recent years due to the advent of fast payment systems like UPI in India, Pix in Brazil, PayNow in Singapore, PromptPay in Thailand, and so on. Technological advances have made payments faster, cheaper, and more secure.

Cross-border payments, however, continue to be slow and expensive, and the transaction failure rate is nontrivial. This is not due to a lack of technological knowhow, but due to the challenges of coordination that need to be overcome to make progress in cross-border payments. Since 2020, the G20 has taken up cross-border payments as a priority.

In their Riyadh declaration in 2020, the G20 leaders highlighted that the pandemic had reaffirmed the need to enhance global cross-border payment arrangements to facilitate cheaper, faster, more inclusive, and more transparent payment transactions, including for remittances. They also endorsed a G20 Roadmap for Enhancing Cross-border Payments and asked the FSB, in coordination with international organizations and standard-setting bodies, to monitor progress, review the roadmap, and annually report to the G20. The FSB has been coordinating work on cross-border payments on behalf of the G20.

In their Rome declaration in 2021, the leaders endorsed certain global targets for addressing the challenges of cost, speed, transparency, and access by 2027, calling on public authorities and the private sector to work together to achieve these goals. They also encouraged jurisdictions to make progress on the implementation of the FSB’s high-level recommendations. They called upon multilateral agencies to continue deepening the analysis on the potential role of CBDCs in enhancing cross-border payments and their wider implications for the international monetary system. In their Bali declaration in 2022, the G20 leaders again expressed their support for the implementation of the G20 Roadmap for Enhancing Cross-border Payments.

Like all countries that have chaired the G20, India will have to set its priorities. Over the last two years, much work has been done to analyze the problems and identify the way forward. In its roadmap, the FSB has identified nineteen building blocks across five areas that could enable progress on cross-border payments. A publication with priorities for the next stage of the work was released in October 2022. In November of the same year, the FSB published a report for the G20 with further details of the implementation approach, including key performance indicators to be used to monitor progress toward the G20’s targets for cross-border payments.

India can claim leadership on this issue. India has not just implemented one of the most successful fast payment systems (UPI), it has also taken certain steps that would help to improve cross-border payments. For instance, India is one of the few jurisdictions in the world that have their real-time gross settlement systems operating for twenty-four hours a day on a business day. This extension of the operating hours can help manage liquidity and settlement risks in cross-border payments. India has also entered into agreements with other countries to enable cross-border payments. The interlinking of UPI and Singapore’s PayNow is an example of this. Such interlinking arrangements can significantly shorten the transaction chains for cross-border payments, making them faster and cheaper.

While the G20 is an informal international organization, since the global financial crisis, it has played an important role in international coordination on the development and regulation of the financial system. The establishment of the FSB in 2009 created a forum through which many substantive issues requiring international coordination could be discussed and specific recommendations could be made. Jurisdictions are then assessed on their consistency with these recommendations, even though they are not binding. The work on cross-border payments is progressing along a similar pattern.

So, what should be the priorities? The FSB’s publication on priorities for the next stage of work identifies certain building blocks that should be prioritized. Progress on these building blocks could translate into significant improvements in cross-border payments.

Some of these building blocks are to be implemented by respective jurisdictions without a need for international coordination:

1. Extension and alignment of operating hours for settlement systems could reduce liquidity costs and settlement risks. According to a recent report that covered eighty-two jurisdictions, real-time gross settlement (RTGS) systems in these jurisdictions are open for about eleven hours in a business day on an average. Extension and alignment of operating hours is something that needs to be done by the respective jurisdictions. India is one of the leaders on this front, with RTGS operating for twenty-four hours a day on business days.

2. Improving direct access for a wide variety of payment service providers to payment systems like RTGS systems that settle in central bank money. According to the BIS, only a minority of systems settling in central bank money currently provide direct access to nonbank payment service providers, foreign banks, and financial market infrastructures. India opened access to nonbanks in 2021.

Unlike the aforementioned priorities, the following three areas require international coordination:

1. Interlinking arrangements, which allow banks and other payment service providers to transact with each other without requiring them to participate in the same payment system or use intermediaries such as correspondent banks, can shorten the transaction chains, reduce costs, and increase transparency and speed of payments. The arrangements include bilateral links of the type that have been initiated between UPI in India and PayNow in Singapore. There are other models as well. Interlinking could cover different types of payment systems (wholesale or retail) and be underpinned by different types of currency arrangements (single currency, multicurrency, or cross-currency).

2. Regulatory coordination across jurisdictions will be key to the success of cross-border payments. This includes coordination to supervise cross-border payment service providers and multicurrency payment infrastructures. Since cross-border payments involve multiple jurisdictions, each one of them cannot on its own regulate the risks of such arrangements. This is an important area in which coordination at the G20 will be required. Similarly, applying AML/CFT frameworks consistently and comprehensively across jurisdictions with a risk-based approach can reduce uncertainty in cross-border payments by improving trust and protecting the financial system from abuse. Further, the country frameworks for data governance and regulation may need to be adapted to enable cross-border payments. Countries have been developing frameworks for data access, data protection, and data flows to respond to the demands of their respective political economies. However, as cross-border payments involve the flow of data across borders, these frameworks may interact with the systems for cross-border payments, sometimes creating frictions for the latter.

3. Harmonizing message formats and application programming interface (API) protocols can, as the BIS has suggested, lead to efficiency gains by “avoiding the need for processing interfaces, system schemas or data enhancement, thus facilitating data interoperability and potentially reducing operational costs for new adopters, and allowing movement towards fully automated straight through processing functionalities.” Message formats and API protocols have been developed in response to specific needs, and it will be important to consider some harmonization in these formats and protocols. For instance, ISO 20022, as the common messaging standard, can help in interoperability and addressing data standards and quality and quantity restrictions in cross-border payments. Many jurisdictions have adopted ISO 20022 as the messaging format for their fast payment systems, and many others are moving toward it.

If India can catalyze progress on the above mentioned three areas that require international coordination to make significant progress on cross-border payments, it would be a significant achievement for its presidency of the G20.

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