Functional Equivalence and Institutional Divergence in Cross-Border Settlement Systems

We have reviewed historical, contemporaneous and innovative setups of crossborder settlement systems. Specifically, we examined medieval merchant banking, modern correspondent banking, FinTech companies, central bank-based clearing unions, innovative platforms. We find a core similarity across all systems reviewed. In fact, setting aside potential technological and cost-efficiency advantages, these systems are likely to produce equivalent outcomes (from the viewpoint of the non-financial sector) in terms of exchange rates and resulting payment flows. There are, however, substantial differences in institutional design and market structure. Specifically, the current system based on correspondent banking is highly decentralized compared to its alternatives.