By: Tim Staheli

Over the past decade, a calculation repeated across hundreds of banks has stripped 60 per cent of correspondent banking relationships from the Pacific and pushed entire export industries to the wall. Africa is building its own answer. A federally chartered crypto bank thinks stablecoins can step in. And the Marshall Islands is distributing dollars by blockchain because the shipping containers stopped coming.

Somewhere in a compliance department in New York or Frankfurt, a spreadsheet returns the wrong answer. The cost of maintaining a correspondent banking relationship with a small institution in Tuvalu, or Moldova, or the Marshall Islands outweighs the revenue it generates. The relationship is closed. Nobody decides to cut an outer atoll off from the global financial system. The numbers just say so.

When de-risking becomes de-trading

Correspondent banking operates in near-total invisibility until it stops working. When a bank in Samoa wants to settle a dollar transaction (a letter of credit, supplier payment, or remittance), it cannot approach the Federal Reserve directly. It relies on a larger institution with access to those rails. The correspondent holds an account on the smaller bank’s behalf, processes its dollar payments, and, in effect, vouches for it within the global system.

Post-2008 regulation changed the economics permanently. AML requirements grew more stringent, penalties became severe, and enforcement actions against major Western banks made clear that maintaining correspondent relationships with frontier institutions was a liability rather than a business. Between 2011 and 2022, correspondent banking relationships globally declined by approximately a quarter. Pacific Island Countries lost 60 per cent of their correspondent banking relationships over the last decade, twice the global average. In parts of Eastern Europe, the picture was similarly severe: Moldova down 55 per cent, Tajikistan down 48 per cent, figures documented by the EBRD and corroborated by World Bank assessments of the region. The banks that departed generally framed their exit as risk management. What they were managing, in most cases, was not the actual risk of the Marshall Islands or Moldova. It was the risk to themselves of the association.

The trade consequences were, for a long time, treated as a payments problem – an inefficient cost to be absorbed. Research published by economists at the EBRD and the CEPR has reframed it. When local banks lose access to correspondent banking services, their corporate clients – particularly SMEs – experience significant declines in exports. Some cease operations entirely. A firm cannot export if it cannot be paid, and it cannot be paid if its bank cannot settle in the counterparty’s currency. Remove the correspondent, and the trade does not reroute. It disappears. The correspondent bank was never simply a payment intermediary. It was the infrastructure on which entire export industries rested, until it wasn’t.

The commercial logic of serving your own region

Africa is where this dynamic is simultaneously most acute and most generative. The continent carries a trade finance gap that the African Development Bank’s most recent report put at between $74 billion and $92 billion in 2024. Tighter correspondent risk appetite, the AfDB warned, could push that figure to $102.6 billion by 2027, potentially erasing a decade of progress.

African banks have been moving into the space vacated by Western correspondents. Intra-African trade now accounts for 34 per cent of bank-intermediated flows, an 89 per cent increase on pre-pandemic levels. Local and regional institutions have been stepping up as confirming banks where international correspondents stepped back. It is substitution that is slower and less capitalised than what it replaces, but grounded in something the spreadsheet in Frankfurt never quite accounted for: proximity, and the commercial logic of serving your own region.

The infrastructure being built to support this is PAPSS (Pan-African Payment and Settlement System), developed by Afreximbank in partnership with the African Union. By early 2026, PAPSS connected over 19 central banks and 160 commercial banks across the continent, enabling payments to be settled in local currencies. In July 2025, it launched the African Currency Marketplace – a platform allowing a business in Accra to pay a supplier in Lagos in cedis, received in naira, without touching a dollar. PAPSS estimates the annual cost of foreign-currency intermediation in intra-African trade at $5 billion. That is the number it is built to eliminate.

Afreximbank was still running commercialisation roadshows in Zimbabwe as recently as May 2026, which suggests the distance between the system’s existence and its practical adoption remains considerable. But the architecture is African-owned, African-governed, and built to serve African trade on African terms.

Settlement is not the same as trust

That alternative is Anchorage Digital’s pitch. Anchorage Digital, the first crypto firm to receive a US banking charter, launched ‘Stablecoin Solutions’ in February 2026: a service offering international banks a faster way to issue, hold, and settle stablecoins, positioned as an alternative to correspondent banking. If compliance costs make smaller or higher-risk markets uneconomic for traditional correspondents, then stablecoins regulated under the GENIUS Act could, in theory, step in. Tether, the world’s largest stablecoin issuer, made a $100 million strategic investment in Anchorage in February 2026. By May, the company’s CEO was telling an industry conference in Miami that Anchorage had won every major contract to issue stablecoins since the GENIUS Act passed, with as many as twenty institutional issuers in the pipeline.

The question is whether this solves the right problem. Correspondent banking was never only pipes and rails. It was also accumulated trust: the credit judgment embedded in a relationship, the willingness of a confirming bank to put its name to a letter of credit because it knew the institution presenting it. A stablecoin settlement layer does not retire those questions. It relocates them. The compliance officer’s spreadsheet does not disappear; it reappears when the stablecoin is issued, asking the same questions about the same smaller or higher-risk institutions, under a different regulatory regime.

PAPSS was built to settle in local African currencies and reduce dependence on dollar rails entirely. Anchorage operates under US law, issues in dollars, and answers to US regulators. The two are not competing solutions to the same problem. They represent different views on whose infrastructure the global payments system should run on, and who should bear the cost when the numbers stop working again.

The Marshall Islands has not waited for either answer. Its government launched ENRA – a blockchain-based universal basic income programme that distributes a digital sovereign bond on the Stellar network directly into citizens’ mobile wallets. Physical dollars used to arrive by shipping container. The ATMs ran dry between deliveries. The new system is a genuine innovation. It is also what a sovereign nation builds when the global financial system concludes it is not worth the paperwork.

Across the Pacific, roughly 700 of 1,200 correspondent banking relationships have disappeared over the past decade. Several sovereign nations now depend on a single thread. The compliance officer in Frankfurt did not intend any of this. The spreadsheet did not have a column for it.