An overview of CLS is a good starting point: http://www.snb.ch/en/mmr/reference/continuous_linked_settlem...
Richard Brown here - the author of the linked article.
Very good point re FX and CLS. I wanted to make the article as simple as possible so as to bring out the fundamental concepts (correspondent banking, deferred net settlement, real-time gross settlement, etc).
In so doing, I had to make some gross simplifications and omissions - the most obvious being ignoring FX but I also made a sleight of hand by implying that banks within a country use the correspondent arrangement I outlined.
However, I hope - even with these simplifications - the concepts came across clearly.
Thanks for taking the time to comment.
Richard
They did, and thank you for that. Still, I would love to see a follow-up article that 'unsimplifies' things a bit, as well as covering FX.
Probably the best in-depth book on this topic I've read is this one. I'd highly recommend it. http://www.amazon.co.uk/Payment-Systems-Macmillan-Financial-...
(Disclosure: it was co-written by one of my colleagues at IBM)
But I think there is a lot to be said for helping people build useful mental models. My experience is that people either have no mental model for how money moves or have models that are just wrong.
So anything we can do to impart some insight has to be a good thing.... but you're right: a little knowledge can be very dangerous :-)
I don't see any other way to teach ideas than to start simple, help provide intuition for the basic concepts, and build from there.
Maybe you should ask the author to add some further-reading references to the article?
I've implemented processing of cross-border payment instructions delivered via SWIFT and there's no way banks will STP a cross-border payment for $150 million. Large payments will always be subject to an authorisation review, at least where I work. That costs money and takes time.
Fundamentally, cash payments will always suffer from counterparty default risk without a central bank. How are you going to build an international central bank or central bank system? The best you'll see are regional efforts like TARGET2.
Digital currencies solve these problems without requiring ridiculous amounts of infrastructure to be created first. If we had to sit around waiting for banks to solve these problems, it would simply never happen.
This is fundamentally why I see digital currencies as the future, and why the hype is indeed warranted (even if perhaps people don't understand why).