Apps bury the case for pan-Asian currency

Unrealistic as it was technically, the idea of a pan-Asian currency always had some political support: Since 2005, the Japanese have published the exchange value of something called the Asian Monetary Unit, a precursor to what would one day become the region’s equivalent of the euro. The debt crisis in southern Europe — and the threat it posed to the single currency in the early part of the last decade — ended that pipe dream.
Now there’s a more modest goal: Keep money national, but allow it to jump borders effortlessly. This vision could start becoming a reality in three years and have a far-reaching impact on a continent expected to account for half of the world’s consumption growth in the current decade.
That’s a $10 trillion opportunity, according to McKinsey & Co. A big chunk of this additional consumption will be fulfilled by small and medium-sized businesses, and a lot of it will occur 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 banking or fintech apps, they can’t do the same for Singapore banks’ customers. National boundaries get in the way. As Ravi Menon, chief 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.”
Thankfully, an upgrade is at hand. From Singapore and Malaysia to Thailand, Indonesia and the Philippines, countries in Southeast Asia want a multilateral network of payments by 2025. Their customers already have access to mobile-phone apps for settling claims in real time, but these are restricted to the local market. The next step is to connect them via the so-called Nexus Scheme, which has been conceived by the Bank for International Settlements as a world wide web of payments, a set of rules that any economy can adopt to set up a gateway to the collective.
The rules will harmonize compliance standards and messaging formats — the instructions intermediaries send one another to move money domestically. Once the platform takes off, international banks will be available on it with competitive currency conversion services. The experience for the customer will be no different whether they’re paying someone next door or a thousand miles away.
Using a smartphone app, an individual or business can already collect money instantaneously and nearly free of cost 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. The technology of correspondent banking, which involves a lender providing a local account to banks based overseas, has improved vastly from when the practice evolved in the late 1800s. But transfers via the SWIFT messaging system — a matter of minutes on the fastest routes — can still take more than two days on several of the slowest.
International transfers with Nexus won’t be totally free. For one thing, currencies will still have to be exchanged. But it may be possible to squeeze the average cost of paying a business in another country to 1% or less and eliminate any corridor where costs are higher than 3%, which is the Group of 20’s goal for end-2027.
Asia’s policymakers have two other reasons to smash the status quo: One, access to SWIFT is at the discretion of American and European politicians; it could get cut off, as it was for Russian institutions earlier this year as punishment for the war in Ukraine. Two, much of international commerce takes place in dollars, and the US currency is expensive right now.

—Bloomberg