Executive Summary

After preparing ground for the transition of Group of 5 (G5) currencies - the US dollar, pound, euro, Swiss franc and yen - from interbank offer rates (IBOR) to their respective alternative reference rate (ARR), focus has shifted to the migration of Asia-Pacific (APAC) and Latin American (LATAM) currencies to ARR.

Even though the lessons learned from the transition of G5 currencies can be leveraged, the adoption of ARR by other economies in APAC and LATAM would not be easy.

The G5 currency portfolio has a material impact worldwide and represents a significant transaction volume across major global banks. The transition to their respective risk-free rate (RFR) has led to the creation of systems and methodologies and standard processes.

However, the exposure of the currencies of emerging economies is not as significant and other key hurdles to the transition are availability of liquidity, unorganised market structure and lack of clear regulatory mandates.

In this paper, we explore the intricacies and challenges related to ARR adoption in 2024 for a few key currencies.