The geopolitics of money is shifting into high gear
IN THE PAST Within a few years, the West-led infrastructure behind globalization fell into disuse even as China built credible alternatives. The World Trade Organization is in tatters, the IMF and the World Bank are fighting for relevance and are tarnished by scandal, and no one can agree on global rules to govern technology.
There is one exception to this bleak picture: the global payments system that underpins the dominance of Western currencies, especially the dollar. Over the past year, one of its main networks, FAST, completed $ 140 billion in transactions, a record level and the equivalent of around 150% of GDP. It’s an impressive sum, but more needs to be done to modernize the payments architecture to ensure its preeminence continues.
The way money circulates around the world is still largely under the control of liberal democracies. Payments are generally made in dollars and, to a lesser extent, in euros, pounds and yen. It is, on the whole, good for the world, providing a reliable system governed by law. It is certainly good for Western countries, strengthening their legal standards, their businesses and their influence.
Behind it lie a myriad of institutions, from banks to New York clearing houses. Despite its importance, FAST, owned by global banks and founded in the 1970s, is an obscure part of it all. It connects 11,000 banks in more than 200 countries, providing a messaging system for transactions. Although based in Europe, it is an accidental mainstay of American influence, with JPMorgan Chase alone accounting for 24% of FAST dollar volumes.
The threat of FAST comes from many sides. Its own record is uneven. In 2016, North Korean pirates used stolen FAST to steal $ 81 million from Bangladesh’s central bank. America is complacent about the dollar system. He used FAST to pursue politicized sanctions, encouraging countries to develop alternatives. In addition, the United States has been slow to upgrade its payment systems at home or develop a central bank digital currency, and Congress is critical of the Federal Reserve’s stabilizing role around the world.
Meanwhile, big tech companies, credit card networks, and banks want to create alternatives. On October 19, Facebook launched its digital wallet. Innovation is welcome, but if only a few companies dominate, costs will rise and poorer countries will suffer. And China is trying its own payment system, called CIPS, and a central bank digital currency. She just asked McDonald’s to adopt the e-yuan in its Chinese branches.
Rather than assuming payment dominance is their birthright, democracies should make sure their systems are faster, cheaper, and more secure so that they remain the first choice of businesses based on merit. FAST has upgraded its network and claims that 92% of major transfers on its high-speed pipelines occur within a day. Not all types of financial market transactions need to be settled at the same time, but FAST must aim for instant payments. Another goal should be to connect to more national real-time payment networks, which are active in 65 countries. It may cost money, but FASTCapital spending in 2020 was $ 56 million, less than a fifth of the budget of payment giants like Ant Group and Visa.
The most difficult task will be to reform FASTgovernance of. Its board of directors is filled with European banks, which was justifiable in the 1970s when they dominated cross-border finance, but which now seems anachronistic. The 25 seats on the board include only two American firms and one Chinese. India and Brazil do not. America and Asia should be better represented, although liberal democratic countries remain in the driver’s seat. When a home needs updating, a good place to start is with the plumbing. â
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This article appeared in the Leaders section of the print edition under the headline “Be Fast, Be Bold”