Geopolitics and global interlinking of fast payment systems?
Published as part of the The international role of the euro, June 2025.
Payments are an essential part of the global economy and constitute a crucial network that goes unnoticed until something goes wrong.[1] Developments in global payments affect the role of major currencies in the international monetary system. Not only do they influence how easily currency transactions can be settled but also transaction costs in financial markets, while generating strategic complementarities between trade and finance.[2] Most cross-border payments are currently processed through a global network of correspondent banks – a chain of intermediaries that processes transactions between banks in different countries and regions. Rice et al. (2020)[3] have explored the network of correspondent banking relationships, finding that transactions are often expensive and slow. One reason for this is that they often have to go through multiple correspondent banks, as there is no direct link between the payer and payee banks, or because several currency conversions are needed.[4]
Limitations in existing payment networks have motivated the emergence of fast payment systems (FPS), which can settle transactions within seconds. FPS improve the efficiency of cross-border payments as they require less time to process transactions, thus reducing settlement risk. They currently exist in over 100 jurisdictions, with more to be launched in the coming years.[5] Additionally, many countries are experimenting by interlinking their domestic FPS with those of other countries.[6]
As of 2024, the network of FPS connections appears to be concentrated on large regional platforms, with hardly any links across clusters. Chart A shows a total of 523 dyadic connections at the country level, with 117 FPS across the globe. There are huge differences in interconnections among FPS across countries and time, resulting in a global fast payment space that is concentrated on a number of large regional platforms, especially in Europe and Africa. TARGET Instant Payment Settlement (TIPS) is the Eurosystem’s FPS, designed to enable pan-European reachability in instant payments. It currently settles real-time payments in euro, Swedish krona and Danish krone, with more currencies expected to be included soon.[7] By contrast, in Latin America and Asia, connections are dependent on the successful domestic FPS of specific countries (Brazil and India respectively). Overall, a striking feature of the global network is that there are hardly any links across clusters.
Direct interlinking of FPS can be prompted by economic, technical or geopolitical reasons. Interlinking can lower transaction costs by reducing the number of intermediaries and exchange rate conversions needed to settle payments. However, interoperability arrangements that enable interlinking are complex to set up and monitor. Such arrangements would therefore only be warranted if there was a sufficiently large potential volume of cross-border flows. Interlinking can also be motivated by technological independence if nations perceive their dependence on payment technologies controlled by foreign countries to be excessive and therefore a risk. Finally, payment systems are a source of geoeconomic leverage: they are a natural monopoly and can effectively be used to impose economic sanctions, as available substitutes are limited.
Figure A
Global network of FPS connections
Sources: Ferrari Minesso, M., Mehl, A., Triay Bagur, O. and Vansteenkiste I. (2025).
Notes: The figure shows existing cross-border FPS connections in 2024. It shows bilateral connections – split between unidirectional and bidirectional (depending on the originating currencies enabled) – and multilateral connections, represented as dyads and coloured by regional platform. BUNA is the platform of the Arab Monetary Fund, Bizum is owned by the Spanish company Iberpay, RT1 is the FPS of EBA Clearing, TARGET Instant Payment Settlement (TIPS) is owned and operated by the Eurosystem, GIMACPAY is the FPS of the Economic and Monetary Union of Central Africa, PAPSS stands for Pan-African Payment and Settlement System and is designed to serve members of the African Union, and Transactions Cleared On An Immediate Basis (TCIB) is used by the Southern Africa Development Community. Data are based on Ferrari Minesso, M., Mehl, A., Triay Bagur, O., Vansteenkiste I., “Geopolitics and Global Interlinking of Fast Payment Systems”, CEPR Discussion Paper, No 20105, 2025.
Empirical results point to geopolitics as an important driver of the interconnection of payment systems. The relative importance of the different underlying forces driving the interconnection of FPS can be quantified through an extension of the standard logit model.[8] Chart A, panel a) shows the model’s estimated effect on the (logarithm of the) odds of interlinking two fast payment systems of one-standard deviation increase in bilateral trade intensity, geographical distance and geopolitical distance after controlling for GDP and technological standards.[9] One finding that stands out is the strength of geopolitical distance – whose effect is estimated to be much larger than that of geographical distance and bilateral trade. Quantitatively, a one-standard deviation increase in geopolitical distance from the sample average – which is roughly one-third of the geopolitical distance between the United States and China – reduces the (logarithm of the) odds of observing a payment link by about 2.8, compared with about 0.5 for the same increase in geographical distance. The results are robust to excluding TIPS links among euro area countries from the sample.
Chart A
Geopolitical factors can shape payment system interlinking
a) Determinants of payment system interlinking | b) Dynamic impact of geopolitical alignment on the probability of interlinking |
|---|---|
(regression coefficients) | (logarithm of the odds) |
 |  |
Source: Ferrari Minesso, M., Mehl, A., Triay Bagur, O. and Vansteenkiste, I. (2025).
Notes: The chart reports the estimates of the following logit model: . The dependent variable is a dummy equal to one if fast payment systems between country i and j are connected in year t. Control variables, that are standardised, include: GDP, trade flows, geographical distance, geopolitical distance measured as the ideal point distance in UN voting, the presence of common messaging standards, ISO 20022 standards and the volume of real-time settlements (RTS) in 2023. The model further controls for origin, destination and year fixed effects. The sample covers the period 2016-23. In panel b), the dependent variable is forwarded to obtain dynamic estimates as in Jordà (2023) and Ferrari Minesso et al. (2022).[10] Data are based on Ferrari Minesso, M., Mehl, A., Triay Bagur, O. and Vansteenkiste I., “Geopolitics and Global Interlinking of Fast Payment Systems”, CEPR Discussion Paper, No 20105, 2025.
Moreover, the effects of geopolitical distance are found to be long-lasting. A one-standard deviation increase in geopolitical distance is estimated to reduce (the logarithm of) the odds of creating a new link by 3.5 in three years’ time (Chart A, panel b). Therefore, if geopolitical tensions continued to rise, this could reduce the odds of forming new connections and bridging different clusters even further.
Payment fragmentation could weaken the international role of major currencies and increase trade costs. If bilateral FPS became widely used, systems with new (regional) settlement currencies might emerge. This could diminish the role of major currencies in the international monetary system, while exposing new systems to stronger currency risks. A fragmented payment network could also make international trade more expensive, as exchanging funds across competing platforms would become slower and more costly in the absence of interoperability arrangements. To tackle the risks of fragmentation in global payments, in 2020 the G20 drew up a roadmap to enhance cross-border payments.[11] In pursuing this roadmap, the ECB has recently launched an initiative aimed at exploring whether to interlink TIPS with FPS in other key countries outside the euro area.
See Kahn, C.M. and Roberds, W., “Why pay? An introduction to payments economics”, Journal of Financial Intermediation, Vol. 18, Issue 1, 2009, pp.1-23.
See Rey, H., “International Trade and Currency Exchange”, The Review of Economic Studies, Vol. 68, Issue 2, 2001, pp.:443-464; Coppola, A., Krishnamurthy, A. and Chenzi, X., “Liquidity, Debt Denomination, and Currency Dominance”, National Bureau of Economic Research, 2023; Devereux, M.B. and Shi, S., “Vehicle currency,” International Economic Review, Vol. 54, Issue 1, 2013, pp. 97-133 and Gopinath, G. and Stein, J.C., “Banking, Trade, and the Making of a Dominant Currency”, The Quarterly Journal of Economics, Vol. 136, Issue 2, 2021, pp. 783-830.
See Rice, T., von Peter, G. and Boar, C., “On the global retreat of correspondent banks”, BIS Quarterly Review, March 2021. Correspondent banking is an arrangement whereby one bank (correspondent) holds deposits owned by other banks (respondents) and provides those banks with payment and other services.
Fees for business cross-border payments range from 1.6% in Europe to almost 4% in Africa. The average cost of sending remittances is 6.4%. On average, less than 50% of global payments are settled within one hour. See Annual Progress Report on Meeting the Targets for Cross-border Payments: 2024 Report on Key Performance Indicators, Financial Stability Board, October 2024.
Fast-payment transactions represented 19% of all electronic payments globally, a figure expected to rise to 27% by 2028, see Frost, J., Wilkens, P.K., Kosse, A., Shreeti, V. and Velasquez, C., “Fast payments: design and adoption”, BIS Quarterly Review, 2024, p. 31.
See Steady as we go: results of the 2023 CPMI cross-border payments monitoring survey, Committee on Payments and Market Infrastructures, June 2024.
See “Sweden joins TIPS – Eurosystem instant payments platform also settles in kronor”, MIP News, February 2024, and the press release entitled “Danish krone now available in all TARGET Services” published on 23 April 2025 on the ECB’s website.
This is similar to the literature studying the determinants of trade agreements. See Martin P., Mayer, T. and Thoenig, M., “Make Trade not War?”, The Review of Economic Studies, Vol. 75, Issue 3, 2008, pp. 865-900.
Geopolitical distance is proxied by the ideal point distance measure of Bailey et al., which is constructed using voting patterns in the United Nations General Assembly. See Bailey et al., “Estimating Dynamic State Preferences from United Nations Voting Data”, 2017.
See Jordà, O., “Local Projections for Applied Economics”, Annual Review of Economics, Vol. 15, 2023, pp. 607-631 and Ferrari Minesso, M., Lebastard, L. and Le Mezo, H., “Text-Based Recession Probabilities”, IMF Economic Review, Vol. 71, Issue 2, 2022, p. 415.
See Enhancing cross-border payments: building blocks of a global roadmap, Stage 2 report to the G20 – technical background report, Committee on Payments and Market Infrastructures, BIS, July 2020.