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Payment Stablecoins and Cross Border Payments: Benefits and Implications for Monetary Policy Implementation, Accessible Data
Figure 1. Summary of Cross-border Costs Faced by Banks and End Users
The figure has three rows: costs faced by banks (row 1), the intermediation chain through correspondent banks (row 2), and costs faced by end users (row 3). Rows 1 and 3 have a series of boxes describing each cost. On row 1, there are three types of costs faced by banks: creating and maintaining a foreign bank (box 1), economies of scale (box 2), and AML/CFT (box 3). On row 3, there are four types of costs faced by end users: added operational cost, messaging compatibility and tracking difficulty (box 1), redundant regulatory checks along the chain (box 2), rent extraction using market power (box 3), and regulatory cost (box 4).
The costs faced by banks flow through to the cost faced by end users. Some of the costs depend on whether the bank uses a correspondent bank. Other costs exist independent of the usage of a correspondent bank. The cost flows associated with creating and maintaining a foreign branch (row 1, box 1) are denoted by red arrows. For example, row 1 box 1 (cost of creating and maintaining a foreign branch), is connected to row 2 (intermediation chain through correspondent banks), which then further flows down to row 3 box 1 (added operational cost, messaging compatibility and tracking difficulty), box 2 (redundant regulatory checks along the chain) and box 3 (rent extraction using market power).
Other costs unrelated to creating and maintaining a foreign branch are denoted with black arrows. For example, the costs faced by banks related to AML/CFT (row 1 box 3) are independent of correspondent banks (row 2) and directly or indirectly are related to costs faced by end users row 3, box 2 (redundant regulatory checks along the chain) and row 3, box 4 (regulatory cost).
Note: Red arrows represent how the fundamental cost associated with creating and maintaining a foreign branch causes downstream effects, leading to end-user costs. Pink items are those that are affected directly or indirectly by these downstream effects.