Where the dollar actually clears

The world's payment plumbing is far more concentrated than most people realise, and it concentrates further every year. A payment between two African countries, in which no American institution has any commercial interest, will usually pass through New York on its way. Understanding why explains a great deal about what cross-border payments cost and how long they take.

Why the dollar is the hub

Dollar-denominated invoicing dominates cross-border trade. Well over eighty percent of trade in emerging market corridors is priced and settled in US dollars, even when neither counterparty is American.

Clearing dollars at scale means being a US-domiciled depository institution, or a US branch of a foreign bank, with a supervisory relationship with the Federal Reserve. That relationship is the gate to the two US settlement systems that matter: CHIPS, which handles large-value net settlement between the roughly forty banks that carry the vast majority of cross-border dollar flow, and Fedwire, which handles real-time gross settlement for high-priority payments and end-of-day settlement between CHIPS members.

Every non-US bank that wants to clear dollars for its customers has to route through one of those CHIPS members via a correspondent relationship. There is no alternative path.

Every dollar payment from outside the United States has to pass through one of around forty banks with a Federal Reserve relationship. That is the structural bottleneck.

Who the hubs actually are

Four US banks handle the majority of dollar cross-border correspondent clearing: JPMorgan Chase, Citigroup, Bank of New York Mellon and Wells Fargo. Bank of America and State Street round out the top group. HSBC USA and Standard Chartered's New York branch handle a meaningful residual for the customers those global banks bring in.

The consequence is worth stating plainly. A Kenyan shilling to Vietnamese dong payment that transits the dollar, as almost all such payments do, touches one of these seven banks on its way through New York.

Each other major currency has its own small hub, geographically anchored to where the currency actually settles. Euro clearing runs through Deutsche Bank and Commerzbank in Frankfurt, BNP Paribas and HSBC France in Paris, and ING in Amsterdam, all direct participants in Target2. Sterling clearing runs through HSBC, Barclays, Standard Chartered, Lloyds and NatWest on CHAPS in London. Yen clearing is Mizuho, MUFG and SMBC in Tokyo.

What it looks like from below

For an emerging market bank, a correspondent relationship is a scarce and negotiated asset. A mid-size Nigerian, Kenyan or Peruvian bank might maintain five dollar correspondents, three euro, one or two sterling and one yen. Every other currency and every other counterparty routes through one of those.

Which is why a Kinshasa to Kampala payment, a transaction that never leaves Central Africa in commercial terms, crosses New York on its way. Kinshasa's bank uses a New York correspondent. Kampala's bank uses a different New York correspondent. The two US banks settle it between themselves on CHIPS.

The dollar leg is structural, not a choice. Neither bank holds a correspondent relationship with the other, so both route through New York and the US banks settle between themselves.

Regional flows aggregate rather than distribute

African banks concentrate their dollar clearing through Citi and Standard Chartered's New York branch, with JPMorgan taking the largest South African and Kenyan institutions and Deutsche Bank New York the residual. Latin American banks route heavily through BNY Mellon and Citi. Middle Eastern and North African banks lean on HSBC and Standard Chartered. Southeast Asian banks concentrate through Standard Chartered Asia's US branches and directly through JPMorgan for the largest.

Drawn to scale, the shape is unmistakable: many regional origins funnelling into very few destinations.

Band widths are indicative shares based on public flow data and disclosed correspondent lists, not audited volumes. The underlying bank-to-bank matrix is held by SWIFT and available only through paid research access.

The retreat

The number of active correspondent relationships globally has fallen roughly twenty percent since 2011, according to the analysis by Rice, von Peter and Boar published in the BIS Quarterly Review in March 2020, which examined SWIFT data through 2018. Latin America was hit hardest, with a decline of around thirty percent. Northern America and the largest global banks were least affected. The count of active cross-border corridors fell about ten percent over the same period. Financial Stability Board annual updates through 2023 report that the retreat has slowed but has not reversed.

Change between 2011 and 2018. Source: Rice, von Peter and Boar, BIS Quarterly Review, March 2020, analysing SWIFT data.

In practice this means fewer paths through the network. When a global bank closes a correspondent relationship with a mid-size Bolivian or Kenyan institution, that bank's payments have to route through one of the remaining connections, often via an additional intermediary that adds fees, sanctions checks and delay.

The concentration is not random. The banks that were already largest have absorbed the customers of banks that dropped correspondent relationships. The map has fewer nodes and thicker connections between them.

What changes

Stablecoin settlement collapses the dollar clearing step for payments that stay on-chain from end to end. A Kinshasa to Kampala payment that originates in a dollar stablecoin and pays out in the same stablecoin never touches CHIPS, never touches a US correspondent, and never sits waiting at a hop.

What still exists is the on-ramp and the off-ramp, each of which typically involves a bank somewhere. That is the seam the current market is moving into.

The structural point holds either way. For as long as trade is invoiced in dollars, somebody has to convert into and out of them. What changes is how many intermediaries sit in between, and how many of them take a fee for the privilege.