4 ms·

> When it is time for the banks to actually move the funds (which often times occurs significantly after the funds are made available to the client in question)

> When it is time for the banks to actually move the funds (which often times occurs significantly after the funds are made available to the client in question) Interesting. That makes SWIFT sound like a sort of digital Hawala system.

vmception 5y ago
There are many more analogs to hawala, not specific to SWIFT, as many banks and financial institutions have accounts at other major financial institutions in a variety of countries, upon transfer by one of their clients, the sub-financial institution decreases their balance at the host institution by giving the host institution the money (or reducing a line of credit), and at the receiving host bank they simply increase the sub-institution's balance (or increase of a line of credit). Final settlement honestly may never occur.
- Kinrany 5y ago
  Cryptocurrency projects should be cloning these interbank exchange mechanisms, not making a single global ledger.
  - vmception 5y ago
    This is what many banks and “enterprise” think blockchain will do for them, yes. There are many solutions and some likely in play. There are some memes about that too. Convoluted arrows between a bunch of banks, next to one arrow between two peers.
  - immibis 5y ago
    That would be called Layer 2. I wonder when cryptocurrency will evolve a SWIFT.
    - Kinrany 5y ago
      It should be layer 0, not layer 2. Full coordination is not a good default.
      - immibis 5y ago
        Look up how layer 2 blockchains work
tuyiown 5y ago
> That makes SWIFT sound like a sort of digital Hawala system. I chuckled, thanks a lot. But numeric money and banking exchange is already based on trust, trust of correct and consistent traceability of exchanges being written by both parties. Hawala is solely based on reputation, and has the very convenient side effect that there is no traceability whatsoever. Doesn't looks like swift to me :)
- alangibson 5y ago
  One thing I always wondered: is there ever a settlement between Hawala agents? It seems like someone could get so unbalanced that they would need to balance out.
  - manquer 5y ago
    Hawala can be out of balance within network. A lot of it was used for remittances etc however the agents had other businesses which helped them keep balance, laundering , high risk or payday loans etc outside the hawala system
  - spiralx 5y ago
    Apparently money gets laundered internationally by under-invoicing via front companies such as import/export businesses, travel agents or foreign exchange shops. https://www.treasury.gov/resource-center/terrorist-illicit-finance/documents/fincen-hawala-rpt.pdf https://www.treasury.gov/resource-center/terrorist-illicit-f...
pjc50 5y ago
Almost all banking systems divide into "clearing" and "settlement". There is an assumption that, like internet peering, the flows will roughly balance. So at the end of the day if there's $10m in one direction and $9m in the other, that gets settled as either a $1m transfer between the two accounts of the banks at the central bank (the modern, fast way), or if no such relationship exists, through a "nostro/vostro account" (Bank X literally itself has an account at Bank Y), or as an overnight interbank loan. This was why the 2008 financial crisis was such a risk; it's perfectly normal for banks to lend hundreds of millions to each other overnight to keep the payments system open, at near-zero interest rates because the risk is zero. But what if the risk isn't zero? What if there's a very real risk that your bank lends $100m to a bank that doesn't open the next day and you have to get in the bankruptcy credit line? Payments would have to slow down or stop happening or dramatically increase in cost. Hence the decision to lend hundreds of millions to every vaguely bank-shaped object to keep the payments system running. It mostly worked, the money was almost all repaid (in fact I think it made a profit in the US?), and incidents of customers queuing at banks or collateral damage to businesses unable to make payments through no fault of their own was minimal.

vmception 5y ago

There are many more analogs to hawala, not specific to SWIFT, as many banks and financial institutions have accounts at other major financial institutions in a variety of countries, upon transfer by one of their clients, the sub-financial institution decreases their balance at the host institution by giving the host institution the money (or reducing a line of credit), and at the receiving host bank they simply increase the sub-institution's balance (or increase of a line of credit). Final settlement honestly may never occur.

Kinrany 5y ago
Cryptocurrency projects should be cloning these interbank exchange mechanisms, not making a single global ledger.
- vmception 5y ago
  This is what many banks and “enterprise” think blockchain will do for them, yes. There are many solutions and some likely in play. There are some memes about that too. Convoluted arrows between a bunch of banks, next to one arrow between two peers.
- immibis 5y ago
  That would be called Layer 2. I wonder when cryptocurrency will evolve a SWIFT.
  - Kinrany 5y ago
    It should be layer 0, not layer 2. Full coordination is not a good default.
    - immibis 5y ago
      Look up how layer 2 blockchains work

tuyiown 5y ago

> That makes SWIFT sound like a sort of digital Hawala system. I chuckled, thanks a lot. But numeric money and banking exchange is already based on trust, trust of correct and consistent traceability of exchanges being written by both parties. Hawala is solely based on reputation, and has the very convenient side effect that there is no traceability whatsoever. Doesn't looks like swift to me :)

alangibson 5y ago
One thing I always wondered: is there ever a settlement between Hawala agents? It seems like someone could get so unbalanced that they would need to balance out.
- manquer 5y ago
  Hawala can be out of balance within network. A lot of it was used for remittances etc however the agents had other businesses which helped them keep balance, laundering , high risk or payday loans etc outside the hawala system
- spiralx 5y ago
  Apparently money gets laundered internationally by under-invoicing via front companies such as import/export businesses, travel agents or foreign exchange shops. https://www.treasury.gov/resource-center/terrorist-illicit-finance/documents/fincen-hawala-rpt.pdf https://www.treasury.gov/resource-center/terrorist-illicit-f...

pjc50 5y ago

Almost all banking systems divide into "clearing" and "settlement". There is an assumption that, like internet peering, the flows will roughly balance. So at the end of the day if there's $10m in one direction and $9m in the other, that gets settled as either a $1m transfer between the two accounts of the banks at the central bank (the modern, fast way), or if no such relationship exists, through a "nostro/vostro account" (Bank X literally itself has an account at Bank Y), or as an overnight interbank loan. This was why the 2008 financial crisis was such a risk; it's perfectly normal for banks to lend hundreds of millions to each other overnight to keep the payments system open, at near-zero interest rates because the risk is zero. But what if the risk isn't zero? What if there's a very real risk that your bank lends $100m to a bank that doesn't open the next day and you have to get in the bankruptcy credit line? Payments would have to slow down or stop happening or dramatically increase in cost. Hence the decision to lend hundreds of millions to every vaguely bank-shaped object to keep the payments system running. It mostly worked, the money was almost all repaid (in fact I think it made a profit in the US?), and incidents of customers queuing at banks or collateral damage to businesses unable to make payments through no fault of their own was minimal.