Currency Usage for Cross Border Payments

IMF Working Papers, March 24, 2023

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Currency Usage for Cross Border Payments

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Bibliographic details

• Authors: Hector Perez-Saiz, Longmei Zhang, Roshan Iyer
• Published: March 24, 2023
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9798400235375.001

Summary findings

• Global usage of currencies other than the U.S. dollar and the euro for cross-border payments remains limited.
• Rapid technological changes (e.g., digital money) or geopolitical changes could accelerate a regime shift into a multipolar or more fragmented international monetary system.
• The analysis uses the Swift database of cross-border payments to empirically estimate:
  • the importance of legal tender status,
  • geopolitical distance,
  • other variables,
  • relative to large inertia effects for currency usage.
• Several forecasting simulations are performed to assess the role of these variables in shaping the future payments landscape.
• The results suggest a substantially more fragmented international monetary system would be unlikely in the short and medium term.
• The impact of new technologies remains highly uncertain.
• Much more rapid geopolitical developments than expected could accelerate the transformation of the international monetary system towards multipolarity.

Methodology and analysis highlights

• Data source: Swift database of cross-border payments (used as the empirical basis).
• Empirical focus:
  • legal tender status,
  • geopolitical distance,
  • other determinants of currency choice,
  • inertia effects in currency usage.
• Analytical approach: forecasting simulations to explore alternative future payments landscapes under varying assumptions about technology and geopolitics.

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