The central banks in the SAARC region also have the ability to play the leadership or catalyst role by providing policy directions, preparing roadmaps in consultation with other stakeholders and guiding national and regional payment system reforms and taking the responsibility to develop a common payment policy framework acceptable to all countries in the region. We need to pay attention to the existing regional clearing mechanisms as well. As in the case of the Asian Clearing Union (ACU), if there are delays in processing payment instruments, combined with official accounting practices for payments that give rise to a float on the balance sheets of the central banks, that will contribute to inefficiency and uncertainty in the payment process. It is significant to note that such inefficiencies can extend to the central bank’s monetary operations and liquidity estimates as floating ACU balances cannot be treated as part of the international reserves of member central banks. Lack of clarity about rights and responsibilities regarding funds on the move is another shortcoming, especially where processing systems and accounting procedures result in long delays between the time a payment instruction is issued and the time it is cleared and settled. Both at national and regional level, supervision and oversight of payment systems have always received less attention compared to the supervision of banks and financial institutions. When there are cross border payments and common clearing and settlement mechanisms, it is important to ensure that there is a well-designed supervisory system.
Sri Lanka, India and Iran have completed their Stage I payment reforms. Pakistan is in the process of completing Stage I, while the other SAARC countries are now taking steps to modernize their payment systems. The maintenance of a safe, sound and efficient payment system is a responsibility of the central bank as many of our central banks have increased focus on wider financial system stability as one of their core objectives. In that context, central banks are called upon to coordinate payment initiatives at national, regional and global levels to ensure that there are appropriate mechanisms for smooth payment flows. 2. Why payment systems are critical to regional development? Payment services are highly integrated and interdependent systems comprising payers, payees, payment instruments, financial intermediaries, markets, service providers, technical infrastructure, legal and regulatory systems and organizational structures. The public policy objectives common to all stakeholders are to enhance public confidence, safety, integrity, access to finance and efficiency of payment systems. Therefore, we need to facilitate cross border trade and investment flows through appropriate payment instruments, clearing mechanisms and settlement systems. In a globalized and highly integrated world, financial sector development is closely associated with cross border flows, including foreign direct investment which is critical to developing economies. Most of us in the SAARC region are FDI recipients.