The governors of the Central Banks of Caricom agreed to advance a local currency-based, instant settlement payment platform to reduce their reliance on the U.S. dollar. A pilot has already managed to complete a cross-border transaction between the Bahamas and Barbados.
Caricom Bloc Advances Pilot to Reduce Dollar Dependence
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Caricom Pilots Payment Platform to Reduce Dollar Usage
The instability of the U.S. trade policy is causing some nations to reduce the use of U.S. dollars in trade transactions, seeking to decrease their reliance on foreign currency. The Caribbean Community (Caricom), an economic bloc that includes 15 member states located in the Caribbean, has recently announced several developments pointing in that direction.
During the 64th Central Bank Governors’ bi-annual meeting, Caricom announced that it would be extending its efforts to lessen the usage of the U.S. dollar for intra-bloc settlements. Instead of using traditional finance rails, the bloc is currently testing a platform that allows instant payments using local currencies.
The platform has already been tested, as Bahamas and Barbados completed a local currency-based, cross-border transaction without intermediaries in April. The central bank governors agreed to extend the pilot and include two new central banks in a new phase of these tests. This will help to keep developing the capabilities needed to rely on this system in the future.
The Caricom Payment and Settlement System (CAPPS) mimics the similarly named Pan-African Payment and Settlement System (PAPPS), allowing trade to flow seamlessly as the system processes currency exchanges in real-time. This means that traders will be able to purchase goods in countries of the bloc with their local currencies, eliminating currency barriers.
CAPPS achieves this by maintaining a record of the settlements completed between these countries. At the end of each day, the balance will be reset, and the excess will be paid in dollars to the corresponding nation, reducing the amount of foreign currency used for these processes.
Caricom is just the latest geographical bloc seeking to reduce the dollar’s usage for trade transactions. Russia, suffering from several unilateral sanctions, has adapted its economy to conduct most of its trade in local currencies with China and other countries of the BRICS bloc.
Read more: Russia’s EAEU Trade Reaches 93% De-Dollarization in Blow to US Dollar Dominance
