What is the best way to send international payments? 👀 Digital currency transfers, especially stablecoins, may likely continue to gain further market share in the future.
Join us in showcasing the cryptocurrency revolution, one newsletter at a time. Subscribe now to get daily news and market updates right to your inbox, along with our millions of other subscribers — what are you waiting for?Cross-border payments are transactions where both parties reside in different countries and use different currencies .They involve different national legal and regulatory frameworks.Transactions may have to be executed across time zones and operating hours.
Ideally, we'd want international payments to comply with regulations, be fast, efficient, instantaneous and support many different currency pairs. Yup, that's quite the wishlist.Correspondent Banking. It is also a handful to explain.. One each for the exporter and importer of the goods in different countries and two correspondent banks used as intermediaries.Because they take on the operational tasks and risks of sending the money across borders and swapping it for the right currency.
Say you import fridges from the EU to the US. Your bank debits your account but does not have access to a EUR account to pay the exporter. It has to contact a correspondent bank that can make the payment to the European exporter. The correspondent bank swaps USD to EUR at the central bank and sends it to the exporter's bank account . The exporter ships your fridges to the US. You pay for the imported goods and a fee for the services of the correspondent bank.
Since banks process many cross-border transactions, they use so-called nostro and vostro accounts to keep track of the money. Nostro stands for “ours” and vostro for “yours.” Money in nostro accounts is money belonging to bank A but held in an account by bank B. Money in a vostro account is money belonging to bank B but held in an account by bank A.
International wire transfers use the Society for Worldwide Interbank Financial Telecommunication network, a global payment network that facilitates the transfer of funds between banks and other financial institutions. SWIFT works by sending payment instructions between two banks, which are then processed by the receiving bank. In contrast to correspondent banking, the two banks do not need to have a direct relationship.
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