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On the surface, global trade and commerce is underpinned by a system of cross-border payments, whereby money flows to where it's needed. Pull back the curtain, however, and it's clear international payments do nothing of the sort. Smoke and mirrors hide the fact that no money ever truly crosses borders.  

The current cross-border payments system stems from innovations made in the medieval city-states of Venice, Florence and Genoa. To support burgeoning trade and ensure prompt payment for goods, the bankers of the day created "nostro-vostro" accounts. A "nostro" account is a bank's own money held in a foreign bank, whereas a "vostro" account is money a foreign bank holds with them.

Despite our increasingly digital and connected world, this antiquated system is still the heart of international payments. In turn, businesses are burdened by unnecessary cost and complexity. Arranging even a simple transfer from one country to another involves multiple correspondent banks each taking a cut, escalating the total cost of the transaction and slowing the process.

The system is also a significant drag on investment. Currently, some £22 trillion is locked away in nostro-vostro accounts, set aside to cover future payments as and when required. Unleashed for investment, this capital would provide a significant spur for growth and could add several points to global GDP.  

Replacing nostro-vostro accounts with a more effective alternative is not difficult. Blockchain technology means that money can be moved across borders seamlessly and instantly. For the first time, currency can be moved anywhere on the planet in under a second and for under a cent.

When it comes to international payments, stablecoins are arguably the most important application of blockchain. As digital assets, stablecoins run on an immutable ledger and are designed to hold their value by being pegged to stable assets like fiat currencies. This peg helps them avoid the wild price swings typical of other cryptocurrencies.

Increasingly winning approval from regulatory bodies around the world, including in the U.S., the EU, Hong Kong and Singapore, stablecoins are slowly being established in mainstream finance. The impact on businesses could be huge. Shifting payments to the blockchain, stablecoins offer faster, cheaper and more transparent transactions. They cut cross-border intermediaries and associated fees, reduce overheads and streamline reconciliation through built-in traceability, saving both time and money. 

And, of course, stablecoins mean that banks no longer need to keep funds in reserve in their nostro-vostro accounts, freeing trillions of dollars that can be invested to boost growth. This would be a boon for  businesses currently facing new barriers to trade, prolonged inflation and slowing growth. 

When they were invented, nostro-vostro accounts were highly innovative, laying the financial groundwork for international commerce, economic integration and the global exchange of goods, services and capital. In a digital and connected world, money can move across borders in seconds. It's time the system for international payments reflected this fact.