Local Currency Cross-Border Payment Infrastructure Growing Fast

Atlantic Council has published an article looking at the growth of using local currencies for cross-border payments rather than the US dollar ¹. The article concludes that this change has been driven by a wish to reduce costs, limit exposure to foreign-exchange volatility, and lessen vulnerabilities stemming from reliance on a handful of major currencies for cross-border payment transactions.

It argues, however, that although this is likely to lead to a more diversified and fragmented international payments landscape, this does not necessarily mean that another national currency – such as the euro or renminbi – is close to replacing the US dollar as the dominant currency in international finance.

The infrastructure needed to use local currencies for cross-border payments is, first and foremost, Instant Payment Systems (IPS), which provide real-time or near-real-time settlement and comply with ISO 20022 for financial messaging between financial institutions and national systems. In 2020, the G20 issued a ‘Roadmap for Enhancing Cross-Border Payments’ with the aim of completing it by 2027. More than 100 countries have developed and started to operate fast payment systems for retail transactions.