Smartphone apps bury pan-Asian currency case

Unrealistic as it was technically, the idea of ​​a pan-Asian currency has always had some political support: since 2005, the Japanese have published the exchange value of what is called the Asian monetary unit, a precursor to what will one day become the regional equivalent of the euro. The debt crisis in southern Europe – and the threat it posed to the single currency at the beginning of the last decade – put an end to this chimera.

Now there is a more modest goal: to keep the national money, but allow it to cross borders effortlessly. This vision could start to become reality in three years and have a huge impact on a continent that is expected to account for half of the growth in global consumption in the current decade.

It’s a $10 trillion opportunity, according to McKinsey & Co. Much of this additional consumption will be met by small and medium-sized businesses, and much of it will happen online. But credit cards and PayPal are expensive options for small merchants. And while Indonesian sellers can easily accept QR code-based transfers from local digital or fintech banking apps, they cannot do the same for Singaporean bank customers. National borders get in the way. As Ravi Menon, head of the Monetary Authority of Singapore, said in a recent speech: “The current state of cross-border payments is not fit for the 21st century.”

Fortunately, an upgrade is at hand. From Singapore to Malaysia via Thailand, Indonesia and the Philippines, Southeast Asian countries want a multilateral payments network by 2025. Their customers already have access to mobile applications to pay claims in real time, but these are limited to the local market. . The next step is to connect them through the so-called Nexus Scheme, which was designed by the Bank for International Settlements as a global payments network, a set of rules that any economy can adopt to establish a gateway to the collective system.

The rules will harmonize compliance standards and messaging formats – the instructions intermediaries send to each other to transfer money domestically. Once the platform is launched, international banks will be available there with competitive currency conversion services. The customer experience will be no different whether they are paying someone next door or thousands of miles away.

Using a smartphone application, an individual or a company can already collect money instantly and almost free of charge from another participant of the same national banking system. In cross-border remittances, however, the average cost is still as high as 6%, according to the World Bank. Correspondent banking technology, which involves a lender providing a local account to foreign-based banks, has improved considerably since the practice evolved in the late 1800s. SWIFT – a matter of minutes on the fastest routes – can still take more than two days on many of the slower ones.

International transfers with Nexus will not be completely free. On the one hand, currencies will still have to be exchanged. But it may be possible to reduce the average cost of paying a business in another country to 1% or less and eliminate any corridor where costs are above 3%, which is the goal of the Group of 20. for the end of 2027.

Asian policymakers have two other reasons for breaking the status quo: first, access to SWIFT is at the discretion of US and European politicians; it could be cut, as was the case with Russian institutions earlier this year as punishment for the war in Ukraine. Second, a lot of international trade is done in dollars, and US currency is expensive right now. In regional trade, especially when small businesses in one country sell goods and services to retail customers in another, there is an opportunity to reduce dependence on a rising dollar through technology.

The banking industry’s annual payments revenue pool is dominated by the Asia-Pacific region, which generates around $90 billion in cross-border trade.(1) Financial institutions are resigned to the idea that their per-transaction fees will drop. What they don’t want is for the volumes to disappear, which can happen if private blockchain-based stablecoins or central bank digital currencies become the preferred technology for international transfers. From their point of view, the advantage of Nexus is that it will not seek to circumvent the banks.

A single currency would have transformed the payment scene in Asia and reduced the dominance of the dollar. Some Chinese state researchers have recently called for a single digital token pegged to a basket of 13 regional currencies. But the difficulties of the euro zone have shown that it is unrealistic to think of such a monetary arrangement without fiscal union. Since a sharing of taxpayers’ resources between rich Singapore and poor Myanmar is hard to swallow even as a fantasy, the next best option to reduce the friction caused by different mediums of exchange may be to harness the power of the smartphone. When a Singapore banking app can be used to pay someone in Jakarta in 60 seconds – at a cost of 1% or less – the question of a single currency becomes moot.

More from Bloomberg Opinion:

• The mobile phone is the cover of the dollar in Asia: Andy Mukherjee

• The post-SWIFT era must begin: Andy Mukherjee

• A catch-22 with central bank digital currencies: Paul J. Davies

(1) These include business-to-business, business-to-consumer and consumer-to-business transactions as well as consumer-to-consumer remittances.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia. Previously, he worked for Reuters, the Straits Times and Bloomberg News.

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