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The central banks that will ban crypto transactions will be at odds with their government’s goal to build quickly their digital economies around blockchain technology. Likewise, more than 100 banks have tested instant payments with the use of the cryptocurrency Ripple. This benefit is particularly impactful in areas, currently dominated by fiat money where there is a bridge with the increased expansion of cryptocurrencies growth and maturity adoption.

This research project has received ethical approval and clearance by the Departmental Research Ethics Geography Sub-Committee of the Department of Geography at Durham University, UK, on the 31st May 2017. 2020 was a record-breaking year for Bitcoin, and this year may not be any different. Banks, well-known business leaders and investors all seem to jump on the digital currency bandwagon.

The consequences of low interoperability are overlapping or limited coverage, sunken investment costs, and inefficiency” (CPMI, 2016b, p. 34). De-risking is particularly detrimental for remittances, because it affects the Global South and MTOs more acutely. Furthermore, CBR reduction and concentration could push back a sizeable amount of remittance forms back into informality (IFC, 2017, p. 49) potentially also making AML and CFT screenings less effective (cf. de Goede, 2003; Vlcek, 2010). To offset these consequences, the IMF and the World Bank investigated blockchain technologies as potential alternatives to Nostro and Vostro accounts. Blockchain technologies promise to introduce shared ledgers without the need to establish centralized clearinghouses, making Nostro and Vostro accounts redundant (IMF, 2017; World Bank, 2018). The next section, hence, will focus on the relationship between Correspondent Banking, blockchain technologies, and formalization.

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Major financial organisations and banks are launching a variety of digital assets and specific cryptocurrency offerings. Some of the major solutions include processing payments, providing escrow services, facilitating international cash transactions, helping customers exchange their money for bitcoins, and even making loans in this currency. Payments and remittances have been a crucial use case of blockchain technologies since their inception. Bitcoin, the first-ever blockchain promised to manage a distributed payment network without a centralized institution for accounting, clearing, and settlement institution (Nakamoto et al., 2019). BitPesa has since expanded in geographical reach by serving eight countries across Africa, and it changed focus, from person-to-person remittances to business-to-business operations, hence losing the original emphasis on remittances per se (DuPont, 2019, p. 19).

However, by making Ripple potentially interoperable with other payment systems, the ILP simultaneously puts Ripple in danger of seeing its margins eroded by the competition fostered by its technology (Bloomberg, 2019; Coppola, 2019; Sloane, 2019). The move of Ripple’s solutions toward profit maximization entails and implies Ripple’s incorporation in existing regulatory structures. Ripple was the second blockchain company to obtain a New York bitcoin license in July 2016 (NYS – DFS, 2016). Ben Lawsky, the very author of the bitcoin license, went on to join Ripple’s board of directors . The promise of mobilizing idle assets by synchronizing circulation performs an imaginary of money as liquidity and lubricant of the engine of the economy. At the same time, it fulfills the promise of the seamlessness of exchanges and frictionlessness of flows typical of logistics (Maurer, 2012b; Plantin and Punathambekar, 2019). Much as just-in-time logistics promised to make the warehouse obsolete, so instant payments promise to make Nostro and Vostro accounts outdated, or so the belief goes (Gregson et al., 2017).

Correspondent banking can be either limited to one respondent-correspondent relation, or “nested” or “downstream,” when one correspondent bank serves several respondent financial institutions simultaneously (BCBS, 2017, p. 24). Payment systems and their design have to be appreciated in their profound distributional and, indeed, political implications (Desan, 2014; Maurer, 2015b). Development economics frames remittances as “aid that reaches its destination” (Bracking and Sachikonye, 2010, p. 218), and assesses their economic impact in terms of net gains and losses, efficiencies, and market failures (Heilmann, 2006; Yang, 2011). This literature focused on measuring the “migration-development nexus,” whereby remittances ostensibly transfer resources in a way that is beneficial for both the global South and North (Datta, 2012, p. 141). Remittances are also praised as counter-cyclical, informal welfare systems that to lift families out of poverty, and that benefit the originating countries’ balance of payments (Barham and Boucher, 1998; De Haas, 2005; Brown, 2006; Hudson, 2008; Mazzucato, 2009).

The lack of regulation makes it difficult, even for banks who are interested to do anything in that direction. While HSBC claimed in 2018 that it lets customers buy and sell cryptocurrencies using their credit and debit cards, fresh rumors have emerged that the bank blocks cryptocurrency-related transactions. Wells Fargo has made attempts to create an in-house cryptocurrency for its banking operations. Surprisingly, though, the bank does not support cryptocurrency-related transactions via customer accounts. Cashaa set out to fill the banking needs of crypto-related businesses, including, exchanges, wallets, and brokers. The company merges the concept of banking and blockchain for B2B as well as for B2C propositions. For cryptocurrency investors, they provide a channel for boycotting non-friendly crypto banks.

Barring one Reddit complaint of a declined transaction probably for security reasons, it appears Natwest is ideal for UK customers who deal with crypto. So, we expect that overtime, SCB will eventually let people at least use their debit cards to buy crypto. You can use their credit or debit cards to buy crypto, and also withdraw or deposit to exchanges freely. But if you stick with the popular ones like Coinbase and CEX.io, then there should be no hiccups.

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Debit card purchases, deposits, and withdrawals from exchanges are always a hit and miss. Fidor counts large crypto businesses like Kraken, Luno, and Bitcoin.de among its banking clients. The firm offers two main types of accounts, the Fidor ICO account, and the Fidor Exchange account. While the latter targets cryptocurrency exchanges, the Fidor ICO account serves projects looking to raise money via a coin offering. Revolut is famous for allowing individuals and businesses to deal with cryptocurrencies using their bank accounts. All three types of account support crypto transactions and are available to users in the EEA region.

It comes as the OCC provisionally approved cryptocurrency exchange Anchorage to become the first “digital asset bank” in the country. Mr Robinson said that there had been a wave of demand from the US in the past two months, although they were behind the Asian market by at least four months. Deutsche Bank has also announced plans to help hedge funds trade digital assets, although has stopped short of identifying the specific cryptocurrencies that will be made available. There is growing consensus among leading central banks that wholesale CBDC could make the financial sector more effective and innovative. A range of sandbox experiments and pilots is set to emerge, involving private sector consortia, central banks and securities exchanges. This application of DLT would significantly de-risk payment settlement, although it would probably create pressures in other places, such as liquidity management. This is one other area in which banks expect significant progress over the next five years, conditional on productive engagement with regulators and other policy-makers.

The number of active correspondent accounts worldwide fell from more than 520.000 to 480.000 (CPMI, 2016a, p. 15). Another study by the World Bank found that half of the respondents directly experienced a decline in correspondent banking relationships. Most of the large banks declared that they actively reduced the number of their correspondent banking relations in the 2012–15 period. The Financial Stability Board estimated that, between 2011 and 2016, the number of active corridors decreased by 6.3% , and the number of active correspondents decreased by 6%. For the corridors to and from the Dollar and the Euro, that jointly represent more than 80% of the value of SWIFT payment messages, the decrease was by 15% (FSB, 2017, p. 1). The blockchain regime has been around for some time now, yet a lot of banks and economies do not feel comfortable in dealing with them. The main reason behind this reluctance is the belief that cryptocurrencies are majorly used to launder money.

Due to this high number of intermediaries, clearing and settlement are typically slower and more expensive in cross-border payments than in domestic payments. Partial fixes to these risks and costs are the introduction of the Continuous Linked Settlement bank in 2002 , and some voluntary schemes in place in specific corridors, such as the one between US and Mexico (Orozco, 2004, p. 24).

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Development is underway to make cryptocurrency easier to use, but for now it isn’t very ‘money-like’. This is why central banks now refer to them as “cryptoassets” instead of “cryptocurrencies”. Bitcoin miners check for transactions on the network, this is where users send and receive bitcoins or store the digital currency. Then they work out complicated mathematical puzzles using extremely powerful computers to find out if the transactions are valid.

Rather than representing radically alternative monetary systems, blockchain technologies are the latest iteration of technologies heralding frictionless capitalism. Lastly, this paper shows the tensions and ambiguities inherent to interoperability and formalization. Blockchain technologies are dynamic in a way that problematizes dichotomies such formal-informal and mainstream-alternative. Hence, rather than providing a quantitative assessment of the impact of blockchain technologies, this paper investigates the ambiguities and tensions in the political economy and imaginaries inscribed in the materiality and design of blockchain-enabled payment systems.

These trends also affect MTOs and charities disproportionately, due to their real or perceived higher risk profile and lower profitability as clients of correspondent banks. These trends are uneven geographically, bearing disproportionately on the Global South. While Europe and South and Central Asia have seen a somewhat consistent reduction in transaction costs between 2011, East Asia, Pacific, Middle East, and both North and Sub-Saharan Africa have seen an increase in transaction fees after 2014 (IMF, 2017, p. 20). In the Middle East and North Africa, 40% of banks reported higher costs related to compliance and fees associated with remittances.

Palestinian banks are under increased pressure and fears of CBR terminations that would impact on a financial system already in dire straits due to the relevance of the shekel in the Palestinian economy (IMF, 2017, p. 17). In Sub-Saharian Africa, Liberia saw the termination of almost 50% of its CBRs between 2013 and 2016 (Erbenová et al., 2016, p. 15).

• Prior to these roles, he was the Director of Big Data at the R&D Center of JSFC AFK Systems.
• They trade and transact in government-backed fiat currencies only, serving as a bridge between cryptocurrency and fiat by allowing deposits and withdrawals from crypto exchanges in the UK.
• The analysis of transactions is performed within the blockchain using machine learning technologies, and the generated reports can serve as the basis for refuting signs of doubtful operation and false positives.
• However, it has somehow obscured and forgotten the broader social processes in which it is inscribed and deployed.
• Surprisingly, though, the bank does not support cryptocurrency-related transactions via customer accounts.

The growth in revenues from cross border payments decreased from 4% in 2011 to 2% in 2015, and revenue margins declined 2% on average between 2011 and 2015 . Furthermore, the drop in interest rates made the liquidity stored in Nostro and Vostro account less profitable (Bansal et al., 2016). Correspondent banking is a distinctive feature of cross-border payments, due to the lack of a worldwide infrastructure of clearing and settlement. Clearing entails the exchange of relevant payment information between the payer’s and payee’s accounts, and the calculation of claims to settle. Settlement is the final discharge of a valid claim by moving funds from the payer’s account to the payee’s account . In domestic payments, messaging, clearing, and settlement frequently happen in parallel to each other through Automated Clearing Houses , and central bank Deferred Net Settlement retail payment systems .

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Besides vendor payments in cryptos, the solution has an inbuilt trading desk enabling peer-2-peer lending and other DeFi functions. “During the Global Financial Crisis, central banks and Governments could act together to defend economies, but if a decentralised cryptocurrency becomes the norm then economies globally are arguably sitting ducks. “If they become truly mainstream, bitcoin and other cryptocurrencies represent a systemic threat to the entire banking system. While payments powered by the Interledger Protocol are now live in many corridors, payments using the cryptocurrency XRP are being rolled out only recently. Ripple announced that xRapid, their corporate product that uses XRP as a bridge asset, was being used in the US-Mexico corridor on the 1st of October 2018. This company is the world’s second-largest MTO after Western Union , with a market capitalization of US$ 148 million and an average revenue per quarter of US$ 300 million .

With no banks or central authority protecting you, if your funds are stolen, no one is responsible for helping you get your money back. There is no central bank or government to manage the system or step in if something goes wrong. There are already strict regulations in place that deal with the handling of electronic money, and these regulations are going to be even tougher over the coming years as the world warms up to cryptocurrencies.

Xace was created as a crypto bank, a bitcoin-friendly bank, and a gaming-friendly bank. However, the bank has time and again reiterated that “crypto-assets” are here to stay. Standard Chartered Ventures , the investment arm of the bank also recently announced plans for a cryptocurrency custody and trading desk. The position of Standard Chartered Bank on this list is tricky because customers report that the bank currently does not allow the use of their debit and credit cards on cryptocurrency-related websites. RBS is one bank that many customers largely report having no issues with when dealing with cryptocurrency transactions.

Fortunately, with the clarifications, they can access dollar-designated payment systems by operating as banks. The OCC aims to correct the U.S. ship and kickstart digital asset innovation in the U.S. banking sector. Banks have to abandon their rigidity and evolve with the technology if they want to stay relevant. Part of the evolution involves being at the top of technological advancements at a time when financial markets are being digitized.

Since 2015, the company Ripple focused primarily on interbank payments, aiming to become a competitor to SWIFT, and it currently counts 200 customers in 40 countries. In the past 10 years, the number of CBRs has decreased, and it was concentrated in the hands of fewer financial institutions.

Blockchain technologies are the latest development in network technologies promising “frictionless capitalism” in the form of low transaction costs and disintermediation. However, as these technologies gain traction, new forms of expertise, specialization, and institutionalization create new frictions and costs. While blockchain technologies disintermediate internally, they re-intermediate, albeit in a decentralized way, between each other. As Nelms et al. have it, blockchain disintermediation coexists with walled gardens and “siloed” networks that cannot interoperate with each other. The frontier of disintermediation and transaction fee reduction is moving to the so-called “Layer 2” and “Layer 3” technologies, such as payment channels, decentralized exchanges, and open interoperability protocols (Poon and Dryja, 2016; Casey, 2018; Herlihy, 2018).

There are no known issues with withdrawing or depositing to cryptocurrency exchanges. Remember, though, that banks typically flag large transactions, and you may have to split transfer amounts or contact TSB in such cases. Thankfully, the relationship between banks and the cryptocurrency industry has gotten better in the last few years.