Digital Money Cross-Border Payments | IMF CBDC Impact

The $190 Trillion Cross-Border Payments Landscape

The global cross-border payments market has grown into one of the most critical arteries of the world economy, reaching an extraordinary $190 trillion in 2023 — approximately 190% of global GDP. This staggering figure encompasses everything from institutional foreign exchange transactions to individual migrant workers sending money home to their families. The IMF’s February 2025 Fintech Note by Eugenio Cerutti, Melih Firat, and Hector Perez-Saiz provides the most rigorous empirical analysis to date of how digital money could reshape this vast market.

The market divides into two fundamentally different segments. The wholesale segment dominates at $146 trillion (77% of total), driven primarily by banks and institutional investors who account for roughly 80% of wholesale volume, with hedge funds and trading firms handling another 18%. The retail segment, while smaller at $45 trillion, is where the human impact is most acute. Within retail, business-to-business transactions claim the lion’s share at $37.9 trillion (85%), while consumer-to-consumer transfers — including the $500 billion global remittance corridor — represent the segment where costs are highest and lives are most directly affected.

Why Cross-Border Payment Costs Remain Stubbornly High

Despite decades of technological advancement, cross-border payment costs remain remarkably elevated, particularly for smaller transactions. The IMF analysis reveals a stark cost gradient: wholesale B2B transactions cost just 0.1% on average, reflecting the efficiency of interbank markets, while retail consumer-to-consumer transfers average 2.5% — and remittances top the scale at a punishing 6.2% average cost across roughly 100 countries surveyed.

The cost problem traces directly to the correspondent banking model, which has dominated international payments for over a century. A detailed breakdown of correspondent banking costs reveals where the money goes: nostro-vostro liquidity management consumes 35% of total costs, treasury operations take 30%, foreign exchange spreads absorb 15%, compliance requirements add 10%, with payment operations, overhead, and network management accounting for the remaining 10%.

Making matters worse, the correspondent banking infrastructure is actively contracting. The number of active correspondent banking relationships declined approximately 4% in 2020 alone, and a staggering 25% between 2011 and 2020. This retreat — driven by increased compliance costs, de-risking pressures, and consolidation — leaves many developing countries with fewer, more expensive channels for international payments. The resulting “correspondent banking desert” disproportionately affects the countries that can least afford it, creating a vicious cycle where high costs suppress volumes, reducing profitability and encouraging further withdrawal.

Payment size also plays a critical role. The IMF data shows costs declining sharply with transaction size: approximately 2.6% for a $100 transfer drops to about 0.6% for a $20,000 transaction. This regressive cost structure means that the poorest senders — migrants sending small remittances — pay the highest percentage fees, while wealthy institutions moving millions pay fractions of a percent.

How Digital Money and CBDCs Can Transform Cross-Border Flows

Central Bank Digital Currencies represent a fundamental reimagining of how value moves across borders. Unlike incremental improvements to existing rails, CBDCs offer the potential to restructure the payment chain itself, eliminating intermediaries and the costs they impose. The IMF identifies several specific mechanisms through which digital money reduces cross-border costs.

First, CBDCs can dramatically reduce nostro-vostro liquidity requirements — currently the single largest cost component at 35% of total correspondent banking expenses. By enabling atomic, near-instant settlement, CBDCs eliminate the need for banks to pre-fund accounts in foreign jurisdictions. Second, programmable digital money enables automated compliance checks that can reduce the 10% compliance cost component while actually improving anti-money laundering and combating the financing of terrorism (AML/CFT) effectiveness. Third, direct central bank-to-central bank settlement channels can bypass the foreign exchange spread that currently absorbs 15% of costs.

Projects like mBridge — a multi-CBDC platform developed jointly by the Hong Kong Monetary Authority, the BIS Innovation Hub, the Bank of Thailand, the Digital Currency Institute of the People’s Bank of China, and the Central Bank of the UAE — have already demonstrated that wholesale CBDC platforms can reduce costs by up to 50%. The Bank for International Settlements continues to expand these pilot programs, providing real-world validation of the theoretical cost advantages.

The interlinking model represents another promising approach, connecting national payment infrastructures across jurisdictions through automated clearing houses or real-time gross settlement systems. Combined with the adoption of standardized messaging formats like ISO 20022, these technical innovations create the foundation for a fundamentally more efficient global payment architecture.

The $510 Billion Savings Scenario: IMF Cost Reduction Analysis

The headline finding of the IMF analysis centers on a carefully modeled 60% cost reduction scenario. This figure is not arbitrary — it derives from an econometric estimation based on three simultaneous changes: a two standard deviation increase in the importance of non-bank payment providers, a corresponding increase in the number of providers in remittance corridors, and improved AML/CFT controls in receiving countries. Importantly, two standard deviations correspond approximately to the gap between the 25th and 75th percentile for each variable, making this an ambitious but empirically grounded scenario.

Under this scenario, total annual savings reach approximately $510 billion — 0.3% of total cross-border flows and 0.5% of global GDP. The distribution across segments reveals where digital money’s impact would be most concentrated:

The numbers tell a clear story: while wholesale transactions generate the largest absolute savings due to sheer volume, remittances see the greatest relative impact at 3.72% of flows. This means a migrant worker currently paying $62 to send $1,000 home would pay roughly $25 instead — a difference that compounds into life-changing sums over years of regular transfers.

Elasticity Effects: How Lower Costs Drive $5.8 Trillion in New Flows

Cost reductions do more than save money on existing transactions — they generate entirely new economic activity. The IMF applies carefully estimated price elasticities to calculate how much additional cross-border flow would result from lower costs. The key finding: a 60% cost reduction could drive approximately $5.8 trillion in additional cross-border flows, a 3% increase representing 6.1% of world GDP.

The elasticity analysis reveals a critically important nonlinear relationship between costs and volumes. At the low end of the cost spectrum (wholesale and efficient retail corridors), the estimated elasticity is just −0.039 — meaning a 1% cost reduction generates only a 0.039% increase in volume. But at the high end (expensive remittance corridors), elasticity reaches −0.4 — ten times more responsive. This nonlinearity means that reducing costs in the most expensive corridors produces disproportionately large economic benefits.

The wholesale segment, despite its massive $146 trillion base, sees only a 2.4% volume increase ($3.5 trillion) because costs are already extremely low. Retail segments, with their higher starting costs and greater elasticity, generate a 5.2% volume increase across all retail categories. The practical implication is clear: policymakers seeking the greatest economic return on CBDC investment should prioritize high-cost corridors where the elasticity multiplier is strongest.

Remittances: Where Digital Money Has the Greatest Impact

Remittances represent the most compelling human case for digital money adoption. The $500 billion annual remittance market is dominated by migrant workers sending relatively small sums to family members in developing countries — precisely the population segment facing the highest costs and with the least ability to absorb them.

The IMF analysis draws on data from approximately 365 payment corridors across 100 countries, revealing enormous cost variation. While some corridors (notably Kyrgyzstan from Russia) enjoy costs as low as 2.35%, others extract crippling fees: Lesotho from South Africa at 19.90%, Gambia from the United Kingdom at 13.45%, and Zimbabwe from South Africa at 13.29%. Sub-Saharan Africa consistently emerges as the most expensive region, with average corridor costs exceeding 8% and fewer available corridors than any other region.

The nonlinear elasticity model predicts that a 60% cost reduction would increase remittance flows to the most affected countries by staggering amounts. For many developing nations, these increases translate to multiple percentage points of GDP — equivalent to significant foreign aid programs but generated through market mechanisms rather than government transfers.

Critically, the analysis also reveals that countries most dependent on remittances often face the highest costs. Tonga, where remittances represent 42.87% of GDP, faces average costs of 9.17%. Gambia, at 25.31% of GDP, endures costs of 13.45%. This correlation between dependency and cost creates a particularly cruel dynamic that CBDCs could decisively break.

Country-Level Analysis: Winners in the CBDC Revolution

The IMF’s corridor-by-corridor analysis identifies specific countries poised to benefit most from digital money adoption. The results are dramatic: several nations could see remittance increases equivalent to 4-6% of their entire GDP.

Lesotho stands out with the most expensive single corridor (19.90% from South Africa) and consequently the highest percentage increase in flows (23.10%). Lebanon benefits from both high remittance dependency (29.36% of GDP) and multiple expensive corridors across eight sending countries. For these nations, CBDC adoption is not merely a technological upgrade — it represents a potential macroeconomic transformation.

The geographic pattern is clear: Pacific Island nations, Sub-Saharan African countries, and fragile economies in the Middle East stand to gain the most. These are also among the countries with the least developed traditional financial infrastructure, suggesting that CBDCs could allow them to leapfrog the correspondent banking model entirely — much as mobile money allowed Africa to bypass traditional banking.

The G20 Roadmap and Policy Recommendations for Digital Payments

The IMF analysis provides empirical backing for the ambitious targets set by the G20 cross-border payments roadmap. These targets include reducing retail cross-border payment costs to under 1% by end-2027, bringing remittance costs below 3% by 2030, ensuring 75% of payments settle within one hour, and providing all end users with at least one electronic payment option by end-2027.

The IMF data suggests these targets, while ambitious, are economically justified by the enormous benefits they would unlock. The authors offer several policy recommendations to accelerate progress. First, CBDC strategies should be tailored to country-specific circumstances — countries with high remittance dependency and expensive corridors should be prioritized for pilot programs. Second, policymakers must consider the unique cost structure of each corridor, as the nonlinear elasticity means one-size-fits-all approaches miss the largest gains.

Third, effective AML/CFT controls must be built into CBDC infrastructure from the ground up, not bolted on afterward. The analysis shows that improved AML/CFT effectiveness in receiving countries is a key driver of the projected cost reduction. Fourth, competition must be promoted by reducing barriers to entry for fintech companies, enabling CBDCs to serve as infrastructure that lowers costs rather than simply creating a government monopoly on digital payment rails.

Beyond the Intensive Margin: The Transformative Potential of Digital Money

Perhaps the most important caveat in the IMF analysis is what it deliberately excludes. The study focuses on the intensive margin — changes in volume within existing payment relationships — while explicitly setting aside the potentially much larger extensive margin effects: new participants, new corridors, new financial products, and structural market transformation.

The authors acknowledge that CBDCs, “together with tokenization of assets on programmable platforms, could move the financial system into a transformative new era by fostering financial development and promoting further inclusion across borders.” This suggests that the $510 billion in savings and $5.8 trillion in new flows represent a floor, not a ceiling, of digital money’s potential impact.

Consider the implications: if CBDCs enable entirely new payment corridors that currently do not exist due to prohibitive costs, or if programmable money enables automated cross-border transactions that were previously impractical, the extensive margin effects could dwarf the intensive margin estimates. The World Bank estimates that 1.4 billion adults remain unbanked globally — bringing even a fraction of them into the cross-border payment ecosystem through CBDC-enabled mobile wallets would represent a structural shift far beyond anything captured in the IMF’s conservative intensive-margin modeling.

Implications for Financial Institutions and Payment Providers

For traditional financial institutions, the IMF’s analysis presents both a threat and an opportunity. The decline in correspondent banking relationships — 25% in a decade — is likely to accelerate as CBDCs provide alternative rails. Banks that cling to the traditional model face margin compression on their most profitable cross-border segments, while those that embrace digital money infrastructure can position themselves as facilitators of the new payment architecture.

Payment service providers and fintech companies face a particularly dynamic landscape. The IMF’s finding that increased non-bank provider participation is a key driver of cost reduction validates the fintech thesis that innovation comes from new entrants rather than incumbent optimization. However, the emphasis on AML/CFT compliance and regulatory coordination means that successful providers will need to combine technological innovation with regulatory sophistication.

For policymakers in developing countries, the message is urgent: the countries that move fastest to implement CBDC-friendly regulatory frameworks and payment infrastructure will capture disproportionate benefits. With the nonlinear elasticity effect, even modest cost reductions in high-cost corridors produce outsized economic gains. The IMF’s data provides the empirical ammunition these policymakers need to justify the investment and regulatory effort required.

The robustness check using a more conservative 50% cost reduction still yields impressive results: $425 billion in total savings and $14 billion in remittance savings alone. Even under conservative assumptions, the economic case for digital money in cross-border payments is overwhelming.