Ripple Explains How RippleNet Can Help Unlock Global Liquidity Bottlenecks
In a recent blog on Ripple Insights, Ripple explained how global liquidity bottlenecks can be unlocked with the help of RippleNet.
The blog starts with the company talking about Nostro accounts:
“Nostro accounts are both the backbone and the bane of international banking. They are the providers of liquidity; accounts that large financial institutions hold in local market currencies on each side of a transaction to facilitate a payment. Without them, international payments would slow to a crawl.”
It continues with:
“However, nostro accounts tie up hundreds of millions of dollars that could be used for investment, lending or dozens of other more productive purposes. They create capital inefficiencies for an institution, add costs, and increase risks from counterparty and currency exchange fluctuations.”
The blog then talks about the importance of liquidity needs as well as how RippleNet deals with them:
“Before an institution can deliver a faster, lower cost and more modern international transaction experience, they must first address their liquidity needs. RippleNet efficiently solves these liquidity pain points for financial providers and banks using flexible solutions that address various types of liquidity provisioning”
Ripple supports three types of liquidity arrangements: traditional bank-to-bank fiat relationships, third-party fiat relationships, and XRP.
Explaining the traditional bank-to-bank fiat relationships, the blog says:
“Traditional bank-to-bank fiat relationships, also known as nostro accounts. This arrangement is supported because it can be optimal for high volume transaction corridors and uses existing bank-to-bank relationships and accounts.”
About third-party fiat relationships, this is what the company says in the blog:
“Third party fiat relationships. This allows banks to prioritize those nostro accounts that make the most sense for them, but then augment them with third party relationships that can overcome the high cost of liquidity in more expensive corridors. Banks can keep the nostro accounts they want and rely on this third party to handle their medium and lesser volume transaction corridors.”
Talking about XRP, the blog says:
“The digital asset XRP. Financial institutions can use XRP and its inherent benefits of speed, scalability and low cost to expand reach into exotic or lower volume corridors without holding new or additional nostro accounts. XRP becomes an on-demand liquidity pool for transaction parties.”
The blog continues praising RippleNet by saying:
“With RippleNet’s pathfinding capabilities, financial institutions can even link together multiple liquidity arraignments within the same transaction to optimize their transaction networks. The addition of XRP as a digital asset helps them be more efficient with their overall capital by funding fewer nostro accounts, lowering costs through atomic processing, and reducing risk through real time settlement and lower counterparty exposure.”
Bringing in some statistics, the blog says:
“This use of digital assets for liquidity purposes has proven time and money savings for providers. Pilots in the crucial U.S. to Mexico remittance corridor using XRP as a digital asset demonstrated savings of 40-70% compared to traditional costs. At the same time, it helped lower settlement times from two to three days to just over two minutes.”
The company is beyond excited about RippleNet. It is already live in more than 40 countries.
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As per another blog on Insights:
“As of today, RippleNet is active in over 40 countries across six continents. New payment corridors have opened up in North America, Asia, Africa, Europe and South America. This provides new access to better international payment services in markets where remitters and SMEs are in the most need.”
The demand for faster, low-cost global payments has been increasing a lot over the last decade since remittance inflows have seen a 400 percent increase.