Central Banks Face 24/7 Settlement Demands as Tokenized Markets Grow

The global payments infrastructure is confronting two distinct but related challenges: cross-border transactions that remain too slow and expensive, and tokenized financial markets that demand round-the-clock settlement capabilities central banks don't yet provide.

These issues emerged prominently at last week's Jackson Hole Economic Policy Symposium, where policymakers and economists examined how payment systems must evolve to support both international commerce and emerging tokenized assets.

Why it matters

As AI-driven digital services expand globally and tokenized assets grow beyond experimental scale, payment infrastructure built for business-hours domestic transactions is becoming a bottleneck. The mismatch between continuous digital markets and intermittent settlement systems could force banks to fragment liquidity across platforms, raising costs and creating financial stability risks.

Cross-Border Payments Still Lag Domestic Innovation

International Monetary Fund Managing Director Kristalina Georgieva told the Jackson Hole conference that while domestic payment systems have achieved significant speed and cost improvements, cross-border transactions remain problematic. "Transactions are still too costly and too slow," she said.

The commercial pressure is measurable. Research by PYMNTS Intelligence with Mastercard found 57% of U.S. small and medium businesses source goods internationally. Among those firms, 43% prioritize faster payment processing and settlement as their top improvement need, and 27% are considering switching providers.

Georgieva pointed to initiatives including the European Central Bank's TIPS service, Southeast Asia's Nexus, southern Africa's TCIB, and BIS Project Agorá as efforts to link domestic and regional systems. She was notably cautious about blockchain, calling its current role "a small experiment" and saying tokenization's eventual impact remains uncertain.

Tokenized Finance Exposes Settlement Infrastructure Gaps

Stanford economist Darrell Duffie's Jackson Hole paper addressed a different constraint. While tokenized U.S. Treasurys currently represent less than 0.05% of the $32 trillion outstanding, Duffie examined what happens if adoption scales significantly.

Tokenized assets can trade continuously on programmable ledgers, but central bank deposits—the safest settlement asset for large financial transactions—generally aren't available on a comparable 24/7 programmable basis. Duffie described safe cash settlement as a "crucial missing element" for tokenized finance at scale.

He argued that stablecoins and tokenized commercial bank deposits aren't suitable settlement assets for multi-trillion-dollar core markets like government securities financing. "Until the largest central banks support 24×7 programmable payments," Duffie wrote, tokenized finance can't reach efficient scale without creating financial stability concerns.

The immediate practical issue is liquidity fragmentation. If funds can't move easily between conventional and tokenized venues, banks may need to maintain separate settlement balances in both systems, raising funding costs even with limited adoption.

AI Amplifies the Cross-Border Challenge

At the G20 Innovation Ministerial in Chapel Hill, Elon Musk offered projections that, if even partially accurate, would intensify cross-border payment demands. He estimated AI could increase global economic output by 20% to 30%, with robotics potentially having larger effects.

More relevant to payment systems was his observation that "anything physical always takes longer than anything which is digital." Digital services developed in one country can be delivered electronically anywhere, leaving only the payment to navigate cross-border friction.

The combined effect is clear: AI could substantially increase digitally delivered cross-border trade volume while the underlying payment infrastructure remains constrained by cost, speed, and settlement limitations.

These details were first reported by PYMNTS.