Ripple, one of the most popular cryptocurrency-related companies in the market has been trying to help financial institutions and banks to process cross-border payments in a faster and cheaper way. With one of the latest products released by the firm, xRapid, the intention is to use the XRP digital asset to reduce even further the costs of sending transactions to different countries.
One of the reasons that Ripple gives for banks to start embracing the XRP virtual currency is due to the fact that they can source liquidity on-demand. Ripple also says that financial institutions will not have to depend on costly Nostro and Vostro accounts located around the world.
However, Frances Coppola, a Senior Contributor for Forbes, explains that there is no such thing as ‘Dorman Funds’ in banking. According to the author of the article, these accounts are transaction accounts that most of the people call “checking” accounts.
On the matter, she wrote:
“‘Nostro’ means ‘my account with you’: ‘vostro means ‘your account with me.’ For every nostro at one bank, there is an equivalent vostro at another bank.”
She puts the example of an American bank that has to make a payment in Euros to another European bank. In this way, the American institution opens a Euro account at the European bank, having in this way a Vostro account that can be used to deposit Euro. The account must hold enough money to meet forthcoming payment obligations.
The article says that these bank accounts are also used to make a lot of money from interest payments on Vostro accounts. Thus, there is an incentive to have large balances on these accounts. However, there is a point to mark related to the fact that interest rates are close to zero.
Banks should always have the funds to cover the obligations for the upcoming 30 days predicting how much funds they will need. Banks can combine reports with spot FX deals or just use FX derivatives to set up future trading steam.
According to the article, the number of funds located in Vostro and Nostro accounts is higher than ever. A report released by McKinsey says that in 2015, Nostro balances around the world reached $27 trillion. The reason why Nostro balances are so high is due to the fact that transnational payments are growing.
Ripple claims that the funds stored in Nostro and Vostro accounts are not doing anything. Although they are locked up, they will be used to make payments in the future. That means that the funds cannot be used by the bank, but instead, they are going to be used to pay someone else.
The author asks the question of whether using XRP to source liquidity on-demand can eliminate large balances in Nostro and Vostro accounts. What Mrs. Coppola explains is that the same amount of money that was going to be used to fund a currency account in another bank will be used to buy the XRP and pay the other institution.
Using XRP for these large transactions would allow banks to use their own currency rather than foreign currency. Additionally, regulators would require the institution to hold liquid assets to cover these payments 30 days in advance as well.
Another thing that the author explains is that banks use Nostro accounts because they receive the most advantageous FX rate. That means that they will be funding Nostro accounts well in advance of a specific payment. Additionally, this money can be lent to short-term wholesale markets or used to buy liquid interest-bearing securities in a specific currency.
She went on explaining that banks will be losing their ability to control their own FX exposure. About it, Coppola explained:
“Rather than the bank choosing when to convert from dollars to Euros, and at what rate XRP hub would do it automatically when the payment was made, and the effective USDEUR exchange rate would be determined by the USDXRP and EURXRP cross rates at that time.”
In the example she provided, she says that the USDEUR is the most liquid FX market in the world. Why would banks use two low-liquidity rates rather than the world’s premier currency pair?
Another thing she talked about is the large sums of XRP that the company currently holds. She mentioned that the price of XRP is not fully market-determined when there is a dominant player rationing the supply. Moreover, she said that the transactions would also take a long time to be processed. Due to the fact that the firms would have to use exchanges, the transaction is not complete until the funds can be withdrawn from the exchange. In many cases, these withdrawal requests can take several days or even weeks.
Finally, Coppola shows that international payments take around 2 or 3 days to be processed. However, the final settlement is instant within the Continuous Linked Settlement (CLS) system.
She concludes saying that using XRP would not eliminate the real problems related to risk-averse banks. The major use case related to XRP is in providing payments around the world in countries that could be shut out of correspondent banking networks. In sum, for Frances Coppola,
“Ripple is trying to solve a problem that does not exist.”
Ripple’s XRP price analysis: XRP/USD faces potential problematic barrier at $0.2800
- Ripple’s XRP price late Thursday is trading in positive territory by some 2.60%.
- Heavy resistance can be observed heading into the psychological $0.3000 territory.
Ripple’s XRP on Thursday is trading in minor positive territory by some 2.60%.XRP/USD is attempting to recover some of the deep losses encountered recently.
The price managed to receive decent support within a buying area of $0.2600-0.2550, a proven territory to attract buyers. Failure of the noted holding could have sent the price down to the psychological $0.2000 mark.
To the upside in terms of resistance, a descending trend line can be observed, which is tracking at $0.2800. Rejections have been seen here through the month so far, as observed via the 4-hour chart view.
XRP/USD 4-hour chart
Xendpay Partners With Ripple to Enter New Market
Based on a recent report, distributed ledger company—Ripple, now has a new client on its global settlements platform, RippleNet.
Xendpay Now Live on the RippleNet
Xendpay, a UK-based remittance startup recently made it known that it has forged a partnership with Ripple which allows the firm to enter new markets like Malaysia, Thailand, Vietnam, Bangladesh, and the Philippines.
Also, RippleNet released a publication which revealed that the platform now supports smaller currencies which were previously not accessible to the remittance company. Such currencies include the Bangladeshi Taka or Malaysian Ringgit. Before, to transact using such currencies, Xendpay had to form partnerships local banks.
Bhavin Vaghela, the head of product innovation at Xendpay said that:
“Previously we had to create a whole business case for each partner,”
“RippleNet reduces that complication and friction,” he added.
Furthermore, Vaghela stated that a larger percentage of Xendpay’s clientele include migrants who send remittances back home to contribute to the education, housing, medical, and utility bills of their family members.
In addition, Ripple announced earlier this year that it will be adding “an average of two to three new financial institutions to RippleNet each week.” RippleNet also surpassed 200 clients globally earlier this year.
Ripple’s SVP of Global Operations, Eric van Miltenburg said that:
“In January, Ripple surpassed 200 customers on RippleNet. The company is experiencing rapid customer growth across all markets and is launching in Brazil in response to high customer demand in South America. We are fortunate to have Luiz on board to expand our presence in the region and help our customers address the challenges of cross-border payments.”
Luiz Antonio Sacco, the veteran fintech entrepreneur and executive which Ripple recently hired as the managing director said that:
“We believe that academic institutions will play a key role in driving the blockchain industry forward. USP and FGV are innovative, forward-thinking institutions that are investing in blockchain research to explore new use cases and help prepare students for future jobs in this space,”
Take Note: How To Use XRP To Fight Off Spam
Ripple XRP, most famous as a remittance payments token, a cross border transaction facilitator, or to others, a security. Did you know though, that XRP can also have a hand in helping you to find spam?
Here’s a thought.
Now XRP is not a spam filter, nor can it actually measure, in any way, the sorts of emails that are entering your inbox, it is however down to the geniusly efficient design of XRP that means it could be used within an incentive platform that stops spam emails from being sent in the first place.
What is Spam?
Something posing as mail (or Spam) is the term used to describe unwanted email messages that are often designed to expose you to free advertising and or malicious scams, such as phishing emails. Spam is annoying, yet it’s now a part of our integrated lives, thanks to the power of the internet. It’s easy to set up spam filters to reduce the amount of spam that enters your inbox, but even so, these filters don’t work all of the time. It is normal to receive spam, but that doesn’t mean we should have to put up with it.
According to Ethereum World News, a user on Reddit has devised a very clever plan to utilise XRP tokens in order to prevent spam in the first place. They propose:
“A bold move that will once and for all stamp out spammers introducing a fee for every mail sent and the need for seeding every KYC approved email linked XRP wallet with 20 XRPs limiting the number of accounts a potential spammer can open. KYC, he says will increase the advertising value of the email account and is what prevents people from being able to set up what you call ghost email accounts.”
How will this work?
It sounds pretty complicated and obviously, XRP wasn’t designed for this, so some adaptation would have to take place. Even so though, the mystery contributor believes the best approach would be to implement this in stages:
“The pilot phase would strictly allow Ripple to Ripple communication. After that and if the initial test phase shows result, Ripple can negotiate with other email providers. Upon agreeing, users will create accounts embedded with Ripple wallets where use is dependent on amount of XRP in those wallets. From there and if interested, other users can opt-in, embed their email with an XRP wallet allowing them to receive paid emails from advertisers at their defined rates. They can also use the same email to send payments as if they were an XRP wallet.”
This creates a culture of XRP sharing and collaboration that makes spam emails costly and worthless.
So, as it stands, XRP can’t be used to stop spam, however if this is picked up by the right people, who knows what the next corporate Ripple tool might be? xEmail, xSpam? Who knows.