Elastic infrastructure: A historical perspective on credit in global correspondent banking and the cross-border payments system

Abstract Tech innovations have the potential to disrupt traditional banking by unbundling banking, money, and payments; however, their impact on the cross-border payments system (CBPS) – which still relies on correspondent banking (CoBanking) networks – remains uncertain. This uncertainty is compounded by the literature’s tendency to distinguish between cash clearing and credit and to focus on the latter. Challenging this distinction, the article offers a historical perspective on the role of credit in CoBanking and international payments. It reveals the deep-rooted importance of credit in the CBPS and highlights correspondent banks’ role in providing it. But deep-rooted does not mean static. Indeed, changes in bank-intermediated trade finance practices during and after WWI reshaped the London-based CoBanking network. Furthermore, cash clearing and credit operations remained remarkably congruent until at least the 1980s, as reflected in banks’ internal organisation, reporting, and contemporaries’ descriptions of the payment system. The article argues that adopting a definition of payment systems that integrates both cash clearing and credit is essential to understanding the history of CoBanking and how it supports the CBPS. It suggests that relying on tech firms to provide the elastic payments infrastructure the economy requires could equate to jumping out of the frying pan and into the fire.