Economic impact of regional and cross regional integration of payment infrastructures D Kumaratunge Director- Payments and Settlements Central Bank of Sri Lanka

Integration of Payment Systems Integration of Payment Systems means interlinking individual payment systems of multiple countries. In the present, many countries in the world have implemented electronic payment systems which has eased the possibility of integration of payment systems of different countries. Developments in the Information and Communication Technology have also made integration of payment systems of different countries possible.

Objectives of Payments systems integration Relatively lower costs and cross border payments can be made faster than correspondent banks provide Regional economic and financial integration and development can be enhanced through easier fund movement within the country. Coordination of monetary policies between economies in the region Possibility of having a common currency within the region

What drives regional payment systems integration? Increase in intra-regional trade, labor & capital mobility Increased harmony between financial institutions in the region Development in the internet based retail trade Increased tourist movement within the region Less reliance on correspondent banks

Bottlenecks to Develop a Common Regional Payment System Cross-border connectivity (for payment instructions) should be established to connect to a common regional payment system The cost to connect the entire region and upgrade infrastructure will be high The risk associated with the exposure of the national payment system of one country to the payment systems in other countries should be evaluated to provide a safer environment for the participants of the national payment system to interact with their counterparts in other countries of the region Foreign Exchange laws of the countries have to be amended to provide smooth transactions between countries in the region Data security standards are required for all participating countries in the regional payment system The level of available technology and infrastructure related to the payment system in each country in the region should be of the same level

Economic Impacts of having a regional payment system This could be taken as the first step for regional monetary corporation and integration and to establish a common regional currency There will be a free flow of funds in and out of a participating country With less friction the cost of cross border transactions would be lowered Consumers and manufacturers will have access to markets of other countries as well

Economic Impacts of having a regional payment system New technologies related to the payments and settlements field shall rapidly expand within the entire region providing better efficiency to the economy More liquidity will be available in the region An alternative can be provided to the use of unregulated cryptocurrencies for cross border transactions

Economic Impacts of having a regional payment system Countries having continuous net outflows will have their currencies depreciated Consumers of countries with higher inflation rates and higher price levels will tend to purchase goods from countries with lower prices. There will be higher cross border competition between manufacturers and financial institutions in the long-run Due to high competition the revenues of these manufacturers and financial institutions might decrease due to lower margins Macroeconomic policy decisions will have to be taken after considering the economic impacts to the entire region

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