Digital payments are accelerating global financial decentralization, and the dominance of the US dollar is facing challenges.

Digital Payments Accelerate Global Financial Decentralization, Challenging Dollar Dominance

Lead: The G20 South Africa summit reaffirmed global cooperation and macroeconomic policy coordination, while the rapid development of digital payment systems is fundamentally reshaping international financial infrastructure. The latest ODI expert commentary notes that real-time payment networks are weakening the dollar's network externalities and pushing the global monetary system toward multipolarity. This trend is of great significance for emerging markets and developing economies, bringing both new opportunities and challenges for policymakers.

Industry Background: The "Infrastructure" Logic of Dollar Hegemony

The dollar's dominance in global payments and trade stems not only from U.S. economic strength, but more deeply from the "network externalities" of its role as an international settlement medium—banks, businesses, and governments habitually use the dollar because it is the most liquid and widely accepted currency. However, this "friction advantage" is being eroded by a new generation of digital payment systems. ODI expert Phyllis Papadavid points out that dominant currency regimes do not change merely because of macroeconomic and institutional shifts; what matters more is the rewiring of infrastructure.

In recent years, U.S. banks have continued to shrink correspondent banking relationships under compliance pressure, further undermining the convenience of the dollar clearing network. Correspondent banks are the traditional arteries of cross-border payments, and their decline means that the traditional dollar-dependent channels have become costly and inefficient. Meanwhile, real-time payment systems in emerging markets are expanding at astonishing speed, offering new pathways that bypass the dollar.

Current Developments: The Rise of Global Real-Time Payment Networks

The G20 cross-border payments roadmap has become an important framework for countries reforming their payment infrastructure. In Asia, India's Unified Payments Interface (UPI) has expanded beyond its home market to Asia, Africa, and the Middle East, and has established interoperability with European payment systems. Brazil's PIX system has also grown rapidly, becoming a benchmark for digital payments in Latin America. China's Cross-Border Interbank Payment System (CIPS) provides a parallel mechanism for RMB trade settlement, gradually reducing reliance on SWIFT and dollar clearing. In Southeast Asia, DuitNow and PromptPay enable direct intra-regional settlement, eliminating the structural need for dollar intermediation.

Data confirms this shift: according to SWIFT data, from September 2024 to October 2025, the dollar's share in global trade finance fell from 83.6% to 80.5%, while the renminbi has slightly overtaken the euro, with each accounting for about 7% of the total. In addition, the share of fast payments in cashless payments has grown exponentially in markets such as India and Argentina, showing that user behavior is accelerating toward instant, low-cost payments.

Implications for the Financial System: Efficiency, Inclusivity, and Competition

This transformation first improves the efficiency of cross-border payments; real-time settlement reduces transaction time and costs, allowing small and medium-sized enterprises to participate in global trade at a more affordable cost. For emerging economies, digital payment systems are a key driver of financial inclusion. For example, the African continent is integrating local payment systems through a Pan-African financial coordination platform, strengthening the linkages between multilateral development banks and national development banks, and leveraging new financial instruments and risk-sharing mechanisms to attract investment.

The competitive landscape of the banking industry is also being reshaped. Traditional banks face pressure from fintech companies, which are entering the payment chain through embedded finance and digital banking services. To remain competitive, banks must increase investment in payment infrastructure and AI-driven risk control models. At the same time, the compliance burden brought about by the contraction of correspondent banking has prompted the industry to explore new models of compliance collaboration, such as data-sharing frameworks based on open banking.

Challenges Ahead: Balancing Regulation and Security

Fast payment systems are not without risks. Data privacy and cybersecurity have become primary concerns, and cross-border data flows involve legal conflicts across different jurisdictions. Insufficient interoperability among payment systems may create new fragmentation. Regulators face a dilemma: they must encourage innovation while guarding against money laundering, terrorist financing, and systemic risks. Digital identity authentication technology may be one solution, but consensus on international standards is needed.

In addition, de-dollarization may bring new macro risks. If emerging markets rely too heavily on local currency settlement, they may face capital flow volatility and currency mismatch problems. Policymakers must build a sound macroprudential framework to manage financial stability risks during the transition.

Future Outlook: The Future of a Multipolar Monetary System

ODI analysis believes that the dollar's status as the dominant currency will not end immediately, but its aura as the "only option" is fading. As alternative payment networks mature, user stickiness will continue to strengthen. In the next three to five years, we are likely to see more bilateral and regional payment cooperation agreements, with the share of local currency settlement rising further. The dollar will remain an important reserve and transaction currency, but the global monetary system will become more diversified.

For regulators and financial institutions, the urgent priority is to invest in interoperable payment infrastructure while formulating flexible and forward-looking rules. The wave of digital payments is irreversible; those who proactively embrace change will lead the next round of financial evolution.

(This article references ODI expert commentary, original link: https://odi.org/en/insights/decentralising-finance-digital-payments-and-the-shifting-of-global-currencies）