The Architecture of Global Payments: From National Segmentation to Global Integration and Back to Geoeconomic Fragmentation (1971 to Today)

The evolution of Financial Market Infrastructures (FMIs) has followed a historical trajectory from fragmented, nation-based systems to more integrated global networks, with recent years showing new signs of fragmentation driven by geopolitical considerations. Using a comparative framework focused on Europe and the US, this paper explores this transformation by analyzing how technological advancements, economic integration, social policy goals and geopolitical dynamics have interacted in shaping the development of FMIs that underpin cross-border payments – particularly payment systems, securities settlement systems, and central counterparties – since the collapse of the Bretton Woods system in 1971. We identify four key periods in this time span.

The first period, from 1971 to the 1980s, marked a shift towards a more flexible, market-driven global financial system. While financial systems remained largely fragmented along national lines, efforts to improve cross-border financial communication, such as the creation of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), set the stage for greater integration.

In the second period, spanning the 1990s to the mid-2000s, the global financial system began to interconnect more seamlessly with the development of regional FMIs, such as the TARGET (Trans-European Automated Real-time Gross Settlement Express Transfer) system in Europe, and global FMIs, such as the Continuous Linked Settlement (CLS) for foreign exchange transactions. The rise of electronic trading platforms and the widespread use of the Internet further accelerated the integration of financial markets, which became more liquid and efficient. However, systemic risks also emerged, culminating in the 2008 Global Financial Crisis (GFC).

The third period, from the late 2000s to the early 2010s, saw deeper integration of FMIs alongside growing concerns about the systemic risks posed by interconnectedness. The implementation of TARGET2 and TARGET2 Securities (T2S) in Europe, along with the expansion of CLS and SWIFT, highlighted the importance of FMIs in efficient cross-border payments and securities settlements. At the same time, the GFC and European debt crisis underscored the threats posed by integrated networks and the need for resilience, leading to new regulations and global standards like the CPMI-IOSCO Principles for Financial Market Infrastructures.

The fourth period, covering the remainder of the 2010s to the present, has been marked by the tension between escalating geopolitical tensions and efforts to promote trade development and financial inclusion. Geopolitical tensions, exemplified by economic sanctions, have demonstrated how control over critical financial infrastructures like SWIFT can be used to exert geopolitical pressure, raising concerns about the risks of relying on foreign FMIs. This has fueled a shift towards the fragmentation of FMIs and a more multipolar financial world. In contrast, the G20’s 2020 Roadmap to Enhance Cross-Border Payments emphasized the need for greater interoperability, sparking initiatives to link retail payment systems and exploring more ambitious projects, such as regional or global platforms leveraging new technologies like DLT to facilitate the exchange of funds and securities.

The paper offers fresh insights into how FMIs have been shaped not only by economic and technological forces but also by strategic geopolitical considerations. By synthetizing the evolution of FMIs with geopolitical analysis and focusing on the tension between integration and fragmentation, it provides a timely and original analysis of the role of FMIs, contributing to the limited research on the evolution of FMIs in financial history and geography and drawing implications for the future of global finance.

Cristina Di Luigi is Deputy Head of the Post Trading Division of the Markets and Payment Systems Oversight Directorate at Banca d’Italia, i.e. the unit in charge of supervision, regulation and analysis related to central counterparties, central securities depositories, and securities settlement systems. She has participated in various international policy-making groups and committees addressing financial market infrastructures at both European and global level, including the CPMI-IOSCO Policy Standing Group and ESMA CCP Supervisory Committee, and supports Fabio Panetta, Governor of Banca d’Italia, in his role as Chair of the Committee on Payments and Market Infrastructures (CPMI). Cristina holds a BSc in Economics and a MSc in International Relations, both from LUISS Guido Carli University in Rome. She is currently a DPhil candidate in Economic Geography at the University of Oxford. 

Antonio Perrella leads the Committee on Payments and Market Infrastructures (CPMI) secretariat team at Banca d’Italia, directly supporting Fabio Panetta, Governor of the Bank of Italy and CPMI Chair. In his role, he develops and coordinates international strategy and policy in the area of payments and financial market infrastructures, including: clearing, settlement, cross-border payments and digital innovations in payments such as CBDCs, tokenisation and crypto-assets. Before joining Banca d’Italia as a Financial Market Expert in 2020, he gained professional experience in the Research and Statistics Departments of the Bank for International Settlements and the European Central Bank, respectively. He holds an MSc in Quantitative Finance and a BSc in Economics from Sapienza University of Rome. He is a CFA Charterholder and a PhD candidate in Banking and Finance at Sapienza University of Rome.