In the first half of the year, the dollar index, which measures the US dollar’s strength, fell 10.8%. This marks the US dollar’s worst start to the year since 1973. The twentieth-century context was the Bretton Woods system losing footing, throwing the price of gold into disarray. Today, the dollar index reflects US President Donald Trump’s trade and economic policy volatility, as investors seek to limit exposure to the currency. In this lack of clarity, conducting cross-border payments in local currencies could render the global payments landscape more sharply.

Where do we stand?

After the Trump administration announced sweeping global tariffs, in the spring of 2025,the markets responded swiftly. Recession warnings emerged across major economies, and the outlook for global trade – and by extension, cross-border payments – darkened.

Historically, cross-border payment volumes have closely tracked the trajectory of international commerce and geopolitical developments. When global trade slows, payment flows tend to contract. At the start of 2025, confidence in global payment infrastructure, whether in US dollars or local currency, was at a low point.

The dominance of the US dollar in international transactions is not new. Since the Second World War, most global trade has become invoiced in just a few currencies – sometimes the euro but most often the US dollar, regardless of which countries are involved. As of 2024, SWIFT data showed that roughly 50% of cross-border payment volumes were denominated in U.S. dollars, 23% in euros, and about 7% in pounds sterling—as “same currency” transactions. True local currency usage across borders remained marginal.

But this dominance comes at a cost. When the dollar is the intermediary, exchange rate risk is frequently passed on to the receiver, settlement can be delayed through correspondent banking chains, and fees accumulate along the way. Also, if the vehicle currency appreciates, it raises the prices of all imports, making the whole industry more volatile.

In contrast, local currency payments—when the beneficiary ultimately consumes the local currency—can offer greater transparency and certainty. FX rates can be locked in at the outset, final amounts are predictable, and payment delivery is typically faster and more traceable.

Many governments have long supported a pivot toward local currency usage. For developing economies, especially, the US dollar represents a limited and costly resource. Dollar reliance also creates an unwanted tether to US monetary policy, which may conflict with domestic economic priorities. This has translated to a geopolitical domain – for countries such as Russia, Belarus, Kyrgyzstan, and Uzbekistan, the share of exports invoiced in the US dollar and euro was 10-50 percentage points lower in 2023 than in 2015-16, where ideological distancing translates to payment flows.

Encouraging local currency settlement also has the potential to strengthen national financial systems. It enhances liquidity in local markets, reduces the need to hold extensive dollar reserves, and enables central banks to operate more freely. 

In response to these realities, numerous governments have backed new frameworks designed to facilitate local currency payments. The ASEAN Local Currency Settlement (LCS) initiative – led by Indonesia, Malaysia, Thailand, the Philippines, and Singapore – enables direct trade settlement without involving a dollar leg. In Africa, the Pan-African Payment and Settlement System (PAPSS), launched by the African Union and Afreximbank, allows intra-continental transactions in local currencies. Finally, China’s CIPS (Cross-Border Interbank Payment System) offers an RMB-based alternative to SWIFT, aligned with Beijing’s ambition to internationalise the yuan.

These initiatives share a common objective: to reduce global dependence on the dollar and enable bilateral payments that bypass the traditional dollar-based infrastructure.

Financial institutions, both banks and non-bank providers, also stand to benefit from this shift. FX revenue traditionally captured by banks in the receiving country can be internalised by the originating institution when conversions occur at the point of payment, reshaping revenue dynamics and offering incentives for broader adoption.

Still, adoption has been slower than many hoped. The benefits are clear, but habits and systems are sticky. That said, the economic environment in 2025 began to nudge the market toward change.

In the first half of the year, the US. dollar depreciated by over 10%, prompting firms globally to rethink their pricing and invoicing practices. Several suppliers began offering discounts for payments made in their local currency in an effort to hedge FX volatility and stabilise revenue. One survey of US middle-market importers found that around 60% secured 1-2% discounts, a substantial proportion achieved 3-5% discounts, and some over 10%, by paying in suppliers’ local currency. Suppliers will often pass savings back to buyers via discounts or better terms if the buyer takes on the FX exposure.

While comprehensive data on currency diversification in payments remains scarce, a clear trend has emerged: more companies now express a preference for receiving payments in their domestic currency. This isn’t yet a structural break, but it may be the start of one.

The US dollar is unlikely to be dethroned overnight, but as internationally operating businesses seek flexibility and security, diversification will emerge as a viable option.

Meanwhile, financial technology is accelerating this evolution. Stablecoins, programmable payments, and blockchain-enabled settlement platforms are lowering the barriers to multi-currency payment flows. Combined with macroeconomic pressures and shifting geopolitical realities, these tools are laying the groundwork for a more diversified, resilient global payments architecture.

Where’s the holdup?

According to the IMF’s FinTech Notes, cross-border payment infrastructure remains “scarce, mostly limited to messaging,” with high legal and operational costs. Many countries, particularly in emerging markets, still lack the real-time payment rails, settlement systems, and compliance mechanisms required to support efficient and secure local currency flows. Even where such systems exist, fragmentation of payment rails is a persistent issue, requiring ongoing focus in harmonisation. Every country has its own banks, mobile wallets, instant payment schemes, regulatory regimes, technical standards, messaging formats… Synchronisation is an ongoing and labourious process.

Financial technology, from stablecoins to blockchain-enabled settlement platforms, is lowering some barriers to multi-currency payment flows, so ensuring this infrastructure is available across the board will be transformative.

Education and awareness are also important. Many corporations, especially smaller enterprises, remain unaware of the benefits of local currency payments or lack the internal systems to support multiple currencies efficiently. This knowledge gap contributes to a continued reliance on dollar invoicing, even in corridors where local currency settlement is now technically feasible.

Through innovative solutions, public institutions can create the incentives and guardrails needed to de-risk local currency flows for private sector actors. 

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The evolution of cross-border payments has come in response to geopolitical developments, as countries increasingly seek to insulate themselves from external shocks and assert economic sovereignty. In this context, the shift toward local currency payments may be as much about resilience and autonomy as it is about cost or efficiency.