Payment System Development in El Salvador
Project Development Objective (PDO)
The objective of this technical assistance is to achieve safer, more efficient, and more inclusive payment systems in El Salvador that are in line with international standards and best practices.
Legal, financial, and operational gaps impair the safety and efficiency of the payment system in El Salvador. Current legislation on El Salvador’s payment system is not only limited but also ambiguous—especially in regard to defining systemically important systems. Thus, the limits surrounding the mandate of the Central Reserve Bank of El Salvador to intervene in the payment system are also ambiguous. Although legislation has established bank oversight of the payment system, the Central Reserve Bank of El Salvador has yet to formulate its oversight policy objectives and plan.
El Salvador has a need for an up-to-date vision of payment system reform. This vision should comprehensively and strategically address all the relevant issues surrounding payment system reform. With neither a common vision nor a proper mechanism to coordinate with the market, authorities’ efforts to encourage a definitive shift toward electronic payments will face further challenges from Salvadorans.
This FIRST (Financial Sector Reform and Strengthening) Initiative project would fund expert technical assistance in an effort to develop a roadmap for (a) reforming the national payment system in El Salvador and (b) strengthening the country’s current legal, regulatory, and oversight framework.
Development of a strategy and an action plan to reform the Salvadoran national payment system will include both a focused stocktaking exercise and a self-assessment of the local gross settlement system. The Principles for Financial Market Infrastructures (PFMIs), which were established by the Bank for International Settlements’ Committee on Payment and Settlement Systems and the International Organization of Securities Commissions’ Technical Committee, will guide the exercise and the self-assessment. The project team will help draft oversight policy and regulation, as well as a payment system law. The team will also support regulators reform the regulatory framework for remittance services. Finally, the project will bring relevant stakeholders together in a workshoto earn the buy-in required for payment system reform.
The main expected outcomes of the project are as follows:
1. Increasing efficiency and inclusiveness of the payment system
2. Strengthening the legal, regulatory, and oversight framework for the payment system and