ECB's Payment System Interlinking Effort Boosts Trade by 4%

The European Central Bank is working to connect domestic fast payment systems across borders to reduce costs and improve transparency in cross-border payments. This effort aims to address the inefficiencies of current payment systems, which can result in high fees and long processing times.

According to a recent study by the ECB, countries with interlinked fast payment systems trade about 4% more with each other than comparable non-linked pairs. This effect is significant, especially for small countries that are less well-served by correspondent banking. In regions with high cross-border payment costs, such as Africa and parts of the Middle East, the gains from interlinking payment systems are largest.

The study also found that links across fast payment systems that support wholesale transactions generate significantly larger gains than those that only facilitate retail transactions. This is because most international trade transactions are settled through large-value payments. The benefits of interlinking payment systems are highly heterogeneous, with small countries and regions with high cross-border payment costs seeing the largest gains.