This paper, for the first time, analyzes the role of economic, technical, and geopolitical factors in interlinking of payment systems across 117 countries, using new data on fast payment links from 2016 to 2023. We test whether links are governed by standard gravity variables influencing international trade patterns, technical features or by instead—or in addition—geopolitical factors. While we find support for the role of economic factors and technical features, the most striking finding is the strength of geopolitical effects. Our estimates suggests that the reduction in the probability of payment links between geopolitically distant countries is as much as twice stronger than for geographically distant ones. Instrumental variable estimates suggest that the effect is causal. The results are in line with the hypothesis that alignment in country-preferences on sensitive features of contractual agreements along with incentives associated with higher opportunity costs of war emphasized in recent theoretical models play key roles in the establishment of interlinking arrangements.

Other non-EU countries in Europe have been even harder hit by the US tariffs than the UK and EU. This caught governments by surprise.