In an in-depth report earlier this week, we showed that, while the Financial Stability Board recognizes some of the policy questions posed by its vision of cross-border payments, many of the most critical are unsaid, let alone answered.  Payment-system experts are unsurprisingly focused on how to make the cross-border payment system work, not on how the workings global regulators might change cross-border finance.  To move forward, FSB must answer a fundamental, paradigm-critical question:  is it possible to build so seamless a cross-border payment system in which so much power is removed from sovereign nations at a time not just of financial-market fragmentation, but also of heightened geopolitical risk and trade tensions?  It’s one thing to work out common operating hours; quite another to craft multilateral entities that take on supra-national power.

I have to say that I think the FSB’s vision for the cross-border system is sweet.  It reminds me of the high hopes I had decades ago for the Internet when I learned that DARPANET – the Defense Departments in-the-loop network – would grow into what we then called the World Wide Web.  The WWW in a lot of addresses is about all that’s left of that gentler time unless you count Facebook’s eerie corporate mantra about its “community.”

The FSB thinks of its cross-border system as a public-private partnership, but that’s what we thought the Internet would become.  It’s now all too clear that transnational tech platforms can easily become transnational powerhouses – check out Libra if you’ve any doubt that the platforms missed this point when it comes to financial services.

The FSB plan is in part premised on containing global stablecoins, but there are many other ways tech platforms can enter cross-border payments.  None is addressed in this plan beyond the statement that the same function should come under the same rules.  Nicely said, considerably harder to do.

Of course, it’s not just Facebook that transformed the Internet from the World Wide Web into a potent tool for its own power.  It goes without saying that nation-states have realized the power of personal data for geopolitical and autocratic objectives.

To build its seamless cross-border system, the FSB contemplates “digital identifiers” held by a “proxy registry” – that is, each of us would have a number and only a multilateral body cocooned in a global entity would know our names.  To say the least, this has chilling implications even though the FSB and its partner agencies think this is just a tech build-out challenge.

Even if nations and their increasingly wary citizens agreed to an all-knowing financial database, digital identifiers could not just power cross-border payments, but also become tools of statecraft.  For example, digital identifiers could become the equivalent of global social-security numbers by which wealth and income could be traced and then monitored by autocratic nations or taxed by reform-minded ones.  The FSB may promise it won’t happen, but payment information is a gold mine for an array of national objectives.  Some we might like, others not, but all pose significant privacy and data-integrity challenges.

Another significant area of sovereign risk is what happens to individual currencies in a seamless cross-border payment system.  The FSB’s plan treats this largely as a matter of foreign-exchange risk management and central-bank liquidity, but it’s far more than that.  In a cross-border payment system comprised of central-bank run domestic payment systems, a global central-bank stablecoin or similar transaction medium of exchange will surely have to be constructed to ensure all the 24x7x365 payments zip in and out of dozens of currencies.  How would this affect monetary policy in each once-sovereign nation?  Would the U.S. willingly allow this new medium to supplant the dollar as a reserve currency?  Even if it did, would the new global stablecoin have the standing once unquestionably associated with the dollar due to backing by a very strong economy under the rule of law?

The reason the cross-border payment system has long been fragmented is because the global economy is comprised of many sovereign nations with competing economic, trade, and geopolitical objectives.  The Internet became a force unto itself – or unto the tech-platform companies as it turned out – because nation states didn’t realize until too late how powerful data flows are across an array of activities once under direct and indirect state control.  It seems most unlikely that nations will again allow a new system of transnational dataflows to emerge without a strong hand in who owns the data contributed by its citizenry.

With the world becoming ever more fractious, a system of free-flowing financial data that can be quickly transformed into powerful data is, sadly, utopian.  There’s much to be done to make global payments better, but I fear that a ubiquitous, instant system is as far off as world peace.