SWIFT will lose ground to Ripple»
Analyst Sal Gilbert explains that Ripple's technology frees up "frozen" capital, forcing SWIFT into a defensive adaptation.
For decades, talking about international transfers was synonymous with talking about SWIFT (Society for Worldwide Interbank Financial Telecommunication). And that's because the interbank network has been the undisputed backbone of the global financial system, a giant that seemed immovable.
However, a new era of financial technology, led by solutions like Ripple, is knocking at its door, threatening to redraw the map of financial power. Now the debate centers on how much of SWIFT's monopoly will yield to the growing cryptocurrency-based system?
To understand the threat that Ripple represents, one must first comprehend the fundamental inefficiency of the current system. As Sal Gilbert, an analyst in finance and ETFs at Teucrium, explains, to settle payments, the SWIFT model forces banks to hold "frozen" capital in accounts around the world.
These accounts are known as nostro/vostro, which allow banks to conduct transactions in foreign currency without the need to constantly convert their local currency.
"If you want to send money from Miami to Tokyo, banks must have money in Tokyo and in Miami," Gilbert points out. This means that if a bank in Miami wants to send $10,000 to a client in Tokyo, it must have funds in a nostro account in yen at a Japanese bank. Thus, the U.S. bank transfers the funds through SWIFT, a process that can take days and requires maintaining a sufficient balance in the nostro account in Japan.
That ability to unlock value is, according to Gilbert, the true catalyst that could drive banks to migrate their transaction flows. He adds that this is money that cannot be lent, invested, or used to generate growth. And this is where Ripple bursts in with a radically different solution
