Trust bridges and money flows

BIS Working Papers  |  No 1112  | 
25 July 2023



Cross-border payments are expensive, slow and opaque, reflecting multiple frictions. These problems are particularly acute for payments between counterparties located in developing economies. In order to improve upon this situation, we must first understand the root causes. Why are cross-border payments harder to complete than domestic payments, and why are payments between counterparties located in developing economies harder than those in more advanced economies? We provide a framework for answering these questions that centres on the fact that modern forms of money depend on credit relationships that require trust.


We show that difficulties associated with making cross-border payments can be better understood by factoring in the importance of trust. We provide a conceptual foundation for the design of markets and platforms that lowers the cost of establishing necessary trust links. In particular, we contrast the bilateral trust relationships that are central to current payment relationships involving correspondent bank chains with alternative trust structures that could emerge in new payment arrangements that we propose.


This paper offers two possible arrangements for cross-border payments. First, we examine the role of a global clearing house. This option would eliminate the need for a complete set of bilateral trust relationships. However, various practical hurdles would probably arise, such as obtaining political backing to mutualise risks from swap lines. Second, we advance a more promising model for a marketplace to trade tokenised money directly across borders. This model would reduce the need for bilateral trust relationships and foster more efficient and competitive market-making.


Cross-border payments are expensive, slow, and opaque. These problems reflect multiple frictions, many of which boil down to limited trust among counterparties. Trust plays a central role in exchanging credit-based money. End users need to trust the issuers of money, and issuers must trust users to satisfy financial integrity requirements. Transactions are possible only where trust links exist. Interoperability between different forms of money can thus be conceptualised as the network of trusted links necessary for transactions. Traditionally, across borders, trust links involve exclusive bilateral credit relationships among correspondent banks. However, the fixed costs required to build these links foster an expensive and concentrated system. This paper interprets different payment arrangements in terms of the implied trust structures. It discusses how the tokenisation of money alters trust links and allows for a potentially more efficient market structure to exchange money. The paper ends with a suggested global marketplace to trade tokenised money directly across borders.

JEL classification:  E42, E51, E58, F31, G28, O32

Keywords: cross-border payments