Arguably the most significant obstacle to a regional cross-border payments network in Southeast Asia has been the difference in regulations and payment practices among the different countries. Unlike the European Union, which has a central bank that determines monetary policy for all of the member states, Southeast Asia has no unifying financial institution.
We will be interested to see if BIS and the founding members of Project Nexus can overcome this challenge. The initiative has set out to link the real-time payment systems of India, Malaysia, Thailand, Singapore, and the Philippines by 2026. Indonesia will be an observer in the project – though it is hard to envision a regional cross-border payments network that does not include Southeast Asia’s largest economy.
To facilitate live implementation, the partner central banks and instant payment system (IPS) operators have agreed to work towards establishing a new entity, the Nexus Scheme Organization (NSO), which will be responsible for managing the project. The NSO will be wholly owned by the central banks and/or IPS operators in participating countries.
As for the BIS, the organization said in a July 1 statement, “In developing the blueprint in phase three of Nexus, the BIS has fulfilled its role of supporting central banks in finding innovative solutions to deliver public goods.” While the BIS will not own or operate the NSO, it will continue its support by playing a technical advisory role as participating countries work towards taking Nexus live. It will also facilitate cooperation among members and the entry of new participants.
Compared to the CBDC project mBridge that BIS has been overseeing, we reckon Nexus may fare better. While CBDCs still often look like a solution in search of a problem, central bankers in Southeast Asia have long sought a regional real-time cross-border payments network. India, meanwhile, has been actively seeking out a larger international role for its UPI payments rail, and Project Nexus offers a clear opportunity to deepen UPI’s global footprint.