Payments represent a foundational element of the global economy, facilitating the flow of financial transactions worldwide.

The evolution of payment systems significantly impacts the role of dominant currencies in the international monetary framework, influencing not only transaction settlement efficiency but also the associated costs in financial markets.

Traditionally, cross-border payments utilized a network of correspondent banks, which serve as intermediaries between financial institutions in different regions.

These networks often lead to higher costs and extended processing times due to the necessity of navigating multiple intermediaries and potential currency conversions.

The limitations of these existing networks have driven the adoption of fast payment systems (FPS), designed to complete transactions in mere seconds.

FPS have emerged across over 100 jurisdictions, with many more expected to be established in the coming years.

These systems enhance the efficiency of cross-border payments by minimizing the time required for transaction processing and thereby reducing settlement risks.

Countries are increasingly experimenting with interlinking their domestic FPS with those of other nations.

As of 2024, the global landscape of FPS reveals a concentration on large regional platforms with limited interlinking across different clusters.

There are 523 dyadic connections at the country level involving 117 FPS worldwide.

Disparities exist in the connection status of FPS among various countries and regions, resulting in dominant network hubs primarily located in Europe and Africa.

For instance, the TARGET Instant Payment Settlement (TIPS) system, managed by the Eurosystem, offers pan-European real-time payment solutions in euros, Swedish krona, and Danish krone, with plans for expansion.

Conversely, systems in Latin America and Asia rely heavily on the robust domestic FPS of countries like Brazil and India.

The potential for direct interlinking of FPS is influenced by economic, technical, and geopolitical factors.

Such interconnections can decrease transaction costs by cutting down on the number of required intermediaries and currency exchanges.

However, establishing interoperable frameworks is complex and requires significant monitoring, justified only by the anticipated cross-border transaction volumes.

Additionally, the desire for technological independence may drive nations to pursue interlinking, particularly if they perceive reliance on foreign-controlled payment technologies as a vulnerability.

Furthermore, payment systems serve as instruments of geoeconomic influence; they can function as monopolies, enabling the imposition of economic sanctions due to the scarcity of alternative options.

Empirical studies indicate that geopolitical dynamics play a critical role in the interconnection of payment systems.

Using an extension of the logit model to analyze the interlinkage, findings suggest that geopolitical distance has a more pronounced impact on linking probabilities than geographical proximity or trade intensity.

Specifically, an increase in geopolitical distance equates to a significant decrease in the likelihood of establishing payment links between nations.

Moreover, the ramifications of geopolitical tensions tend to endure.

Increases in geopolitical distance correlate with long-term reductions in the likelihood of forming new payment connections, potentially hindering the integration of disparate financial systems.

A fragmented global payment environment poses threats to the international standing of major currencies and could elevate trade costs.

Should bilateral FPS gain widespread adoption, there is a likelihood of new regional currencies gaining traction, which could undermine the dominance of long-established currencies in international financial transactions and expose nascent systems to heightened currency risk.

The fragmentation in payment networks could complicate international trade, leading to increased costs and slower transactions without proper interoperability.

In response to these challenges, a roadmap to bolster cross-border payments was crafted by the G20 in 2020. Following this directive, initiatives have been launched, such as the European Central Bank's exploration of potential interlinkages between TIPS and other key global FPS systems to enhance international payment efficiencies.