Another milestone for digital currency The digital currency company Ripple and a consortium of banks announced on Thursday a successful trial involving international payments that stands to reduce settlement costs by 60 percent, and spur further attempts to integrate new technology into the financial system. The trial took place between San Francisco-based Ripple and R3, a financial innovation consortium backed by dozens of banks. The announcement on Thursday involved 12 of those banks, including Barclays BCS 3.27% and BMO BMO -0.02% , which used Ripple’s currency known as XRP to provide liquidity for cross-border settlements. Ordinarily, when a bank wishes to acquire currency in another bank in a different country, it relies on so-called “ nostro accounts ” in which the banks holds its foreign exchange assets such as pounds or yen. It also involves paying the foreign bank in another currency, such as dollars, using a separate account. This process can be time-consuming and expensive as banks must find and acquire the requisite liquidity to settle the transactions. That’s where Ripple comes in. The banks can use its digital currency, which can be acquired instantly, to expedite settlement liquidity. (It’s important to note that Ripple’s digital payment network, unlike bitcoin, does not only transmit its native digital currency, but can also be used to move traditional fiat currencies back and forth.) “It’s not on a transaction by transaction basis – instead, it involves using XRP as backstop if there’s a shortage in a day,” Nilesh Dusane, Ripple’s head of Global Sales, said in a phone interview. Dusane added that the availability of XRP as a backstop means banks need to tie up less capital for settlement purposes, and can instead deploy it for other purposes. He said it will also reduce the cost of using and maintaining nostro […]
