The use of the euro for international settlements reached a historic low in July, according to RIA Novosti analysis. Data from SWIFT revealed that cross-border transactions involving the euro accounted for only 24.4% of total transactions last month, marking a significant decrease of 6.83 percentage points compared to the previous month.
Meanwhile, payments using the US dollar saw an increase to 46.4% of total transactions. This suggests a continued dominance of the dollar in global transactions. Additionally, cross-border transactions involving the Chinese yuan rose to over 3%, the highest level seen since the beginning of 2022. This growth is in line with Beijing’s ongoing efforts to internationalize the use of its currency.
SWIFT, the Society for Worldwide Interbank Financial Telecommunications, remains the primary tool for processing global payments. However, alternative inter-banking messaging systems have emerged in recent years. Russia, for example, developed its own national payment system, the SPFS, in response to US sanctions imposed in 2014. The SPFS enables the transfer of financial messages between banks both within and outside the country. In addition, Russia’s Mir cards were introduced in December 2015 and are now used in several countries.
Similarly, China has its own payment system called CIPS (Cross-Border Interbank Payment System), while India has the SFMS (Structured Financial Messaging System). These countries, along with their trade partners, have been increasingly using local currencies in settlements, aiming to establish a new reserve currency amidst Western sanctions on Moscow.
The decline in the euro’s share of cross-border transactions points to potential challenges for the European currency’s standing in the international financial system. While the euro has long been regarded as a major global currency, it now faces competition from other currencies and is losing ground. This may have implications for the European Union’s aspirations to establish the euro as a strong alternative to the US dollar.
In response to these developments, the EU is reportedly considering a compromise with Russia on the use of SWIFT. This indicates a recognition of the changing dynamics in international transactions and the need to adapt to ensure continued access to global financial networks.
Overall, the decline in the euro’s share of cross-border transactions highlights the shifting landscape of international finance. As alternative currencies gain prominence and countries develop their own payment systems, the dominance of established global currencies may be gradually eroded. The evolving dynamics in international transactions could have far-reaching implications for the global financial system and the role of traditional financial institutions. As countries seek greater financial independence and the use of local currencies in settlements, the future of global transactions remains uncertain.