About local currencies for cross-border payments ...

 Much progress has been made in the use of local currencies for cross-border payments since I last took stock in 2023. This trend has been driven by countries’ efforts 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 has also been facilitated by innovations in payment and settlement technology, including, more recently, applications powered by artificial intelligence.

Continued growth in the use of local currencies in cross-border payments is likely to lead to a more diversified and fragmented international payments landscape. Contrary to speculation from some market participants, however, 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.

Modernizing the plumbing of international finance

The infrastructure needed to use local currencies for cross-border payments has several components—all of which are now being implemented in a growing number of countries.

First and foremost is the transition to 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. These efforts have been closely aligned with the G20 Roadmap for Enhancing Cross-Border Payments that was launched in 2020 and aims to be completed by 2027.

In an impressive development, more than one hundred countries have developed and started to operate fast payment systems for retail transactions—especially since the COVID-19 pandemic. At the wholesale level, many countries use a hybrid system of real-time gross settlement and deferred net settlement (DNS) to settle accounts between banks in support of retail fast payments—a few, including the United Kingdom (UK), Singapore, and South Africa, rely on DNS to economize on bank liquidity. Instant payments are projected to grow from 16 percent of total payment transactions in 2023 to 22 percent in 2028.

The map below shows and ranks the largest markets for instant payments by transaction volume. Notably, four of the top five are Asian economies, with India leading by a wide margin.

The global push for local-currency cross-border payments is intensifying - Atlantic Council