Beeline to join the ARR bandwagon

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

The G5 currencies have considerable global impact as these represent significant volume of transactions across major global banks. The transition to their respective risk-free rates (RFRs) has led to the setting up of systems and methodologies, and standardised processes.

Even though the lessons learnt from the transition of G5 currencies can be leveraged, the adoption of ARR by other economies will not be easy, owing to liquidity constraints, unorganised market structure and lack of clear regulatory mandates.

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

JPY TIBOR cessation

The Tokyo Interbank Offered Rate (TIBOR), which is published by the Japanese Banking Association TIBOR Administration (JBATA), is an interest rate benchmark for the yen, mainly used in loans and derivative transactions, and comprises Japanese yen TIBOR and Euroyen TIBOR.

In May 2019, JBATA published its first consultation paper on retaining Japanese yen TIBOR and discontinuing Euroyen TIBOR. Following discussions, JBATA has decided to discontinue Euroyen TIBOR by end-December 2024, with the cessation date for booking new trades based on the benchmark set six months prior to the deadline, i.e., June 2024.