Jackson Hole and G20 Map a Future of 24/7 Payments and AI

A financial market that trades around the clock can’t wait until the next banking day to settle. A business selling digital services overseas has a different problem: the product can cross the border more easily than the payment.

Both issues surfaced last week at the Jackson Hole Economic Policy Symposium. Separately, the G20 Innovation Ministerial in Chapel Hill added artificial intelligence (AI) and robotics to the picture, including a Tuesday (Sept. 1) discussion spotlighting Elon Musk’s view of how quickly digital technology could spread compared with the physical economy.

Domestic payment innovation has brought significant improvements in speed, ease and cost, but progress across borders has been less consistent, International Monetary Fund (IMF) Managing Director Kristalina Georgieva noted last week at Jackson Hole.

“Transactions are still too costly and too slow,” Georgieva said in remarks delivered to the conference.

The commercial demand for improvement is already evident. PYMNTS Intelligence research with Mastercard found that 57% of U.S. SMBs buy goods or materials from overseas suppliers. Among firms sourcing internationally, 43% put faster payment processing and settlement at the top of their list for improvement, and 27% expressed interest in switching cross-border payment providers.

Georgieva cited several efforts to address the gaps between markets, including the European Central Bank’s TIPS service, Southeast Asia’s Nexus initiative, southern Africa’s TCIB and BIS Project Agorá. The approaches vary, but they reflect the limits of solving payment speed one country at a time. A transaction that moves instantly domestically can still encounter different currencies, institutions and regulatory requirements once it crosses a border.

She was considerably less certain that blockchain would provide a shortcut. Georgieva described its current role as “a small experiment” within global payments. Tokenization and stablecoins could make some large-value cross-border payments cheaper and faster, she said, but their eventual role remains uncertain. Georgieva specifically raised cross-border trade in digital services, telling the audience to “think AI.” More efficient cross-border payments, she said, could improve the growth prospects associated with that trade.

Musk’s appearance at the G20 Tuesday offered a view of how rapidly the digital side of the economy could develop if his forecasts prove even partly correct.

He estimated that AI could eventually increase global economic output by 20% to 30%. Robotics could have an even larger effect, he said, predicting more than 1 billion humanoid robots within 10 years. Those are Musk’s forecasts, not G20 projections.

His comparison of software and robotics was less dependent on those forecasts.

“Anything physical always takes longer than anything which is digital,” Musk said.

AI software can be replicated and distributed. Robots have to be manufactured. Musk described physical AI as dependent on software, chips and electromechanical systems, backed by factories and global supply chains. He also said electricity availability could constrain the expansion of AI computing.

Digital services don’t carry the same manufacturing and distribution requirements. A service developed in one country can be delivered electronically to a customer in another, leaving the payment to navigate the cross-border costs and delays Georgieva described.

Speed alone won’t determine which providers capture that business. Research on internationally active SMBs shows businesses also care about transparency, currency support and service. As Mastercard’s Mike Kresse, executive vice president, commercial and new payment flows, North America  told PYMNTS, “Speed is table stakes.” 

Tokenization Moves From the Asset to the Cash

Tokenized finance brings a different constraint into view.

Stanford economist Darrell Duffie’s Jackson Hole paper on tokenized finance starts with a market that remains small. Roughly $15 billion of more than $32 trillion in outstanding U.S. Treasurys has been tokenized, less than 0.05%.

Duffie is concerned with what happens if that changes.

Tokenized assets can trade continuously on programmable ledgers. Large conventional financial transactions ultimately rely on central-bank deposits for the safest form of settlement, and those deposits generally aren’t available on an equivalent programmable 24/7 basis.

Safe cash settlement is a “crucial missing element” for tokenized finance at scale, Duffie wrote. He argued that stablecoins and tokenized commercial bank deposits aren’t suitable settlement assets for multi-trillion-dollar core markets such as government securities financing and clearinghouse payments.

“Until the largest central banks support 24×7 programmable payments,” Duffie noted, tokenized finance can’t reach its natural efficient scale without creating financial-stability concerns.

He doesn’t prescribe a single route. One approach would allow banks to transfer central-bank deposits over programmable 24/7 ledgers. Another would synchronize conventional large-value payment systems with tokenized platforms so central-bank money and the asset move together.

For banks, the immediate issue is liquidity.

If funds can’t readily move between conventional and tokenized venues, institutions may have to maintain settlement balances in both. Duffie’s analysis finds that even relatively limited fragmentation can raise funding costs.

PYMNTS has already covered another part of the Jackson Hole discussion. BIS General Manager Pablo Hernández de Cos argued that tokenized deposits have advantages over stablecoins as a form of digital money. Duffie’s paper moves beyond the choice of instrument to the cash needed to settle transactions if tokenized markets become materially larger.

Cross-border payments and tokenized finance are putting different demands on the payments system.

For cross-border payments, domestic speed has exposed the delays that remain when money moves between countries. For tokenized markets, continuous trading raises questions about when central-bank money is available and where banks need to hold liquidity.

AI could increase the volume of the first without causing the underlying payment problem. Musk’s forecasts may or may not prove right, but software is already easier to distribute internationally than physical goods. For banks and payment providers, the work ahead is becoming more specific, at least as signaled at Jackson Hole: make cross-border payments less costly and slow, and determine how continuous tokenized markets will be funded and settled.

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