Comment by sida | Hacker News Reader

Comment by sida | Hacker News Reader

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I can't reply the comment below so I will reply to this one.

XorNot: Please correct me if I am wrong.

USD is not a relevant comparison. What matters here is how money gets moved. When money is transferred within the country, a central bank (Fed Reserve, Bank of England, Reserve Bank of Australia) keeps an account for each local bank. Which means that when 'Alice' of Wells Fargo sends money to 'Bob' at Chase, the central bank actually debits and credits the banks. And then several times a day the banks will settle with each other and net out the differences.

But this is not possible internationally, that means banks must each other have direct bank relationship and have an account with each other. And if 2 banks don't have direct relationship, then they have to go through intermediary banks which they do have a relationship.

Enters Bitcoin, what bitcoin provides is not a reserve currency, what it provides in this context is a global ledger. Instead of the Commonwealth bank of Australia (CBA) needing to have a direct account relationship with Wells Fargo (WF) bank. CBA can just simply send bitcoin to WF.

There is a bit more about the underlying transfers here: http://gendal.wordpress.com/2013/11/24/a-simple-explanation-...

Although here is my question:

Why doesn't international transfers just go through the VISA network. The VISA network is essentially the global central bank

Internationally banks simply have to be able to acquire sufficient foreign currency holdings. Which is trivially easy because every competent reserve bank on the planet has enormous foreign currency holdings.

But this is all irrelevant to Bitcoin - which is marketed by its advocates a consumer currency, not an international system of exchange between institutions. Institutions have no need nor desire for such a thing - it is a saturated marketplace, with literally thousands of avenues of exchange, of which Bitcoin is a particularly poor one.

Which circles back to my original point: foreign currency transactions are very simple for anyone ranging from consumers to medium or large size businesses, barring tax issues (like not paying a lot of it). Bitcoin does not solve a problem not already solved for centuries by the banking system - this is literally the thing that got it started way back with the Knights Templar.

I have a feeling that international remittance is not as simple acquiring FOREX reserves. Often times you see international transfers from an Australian bank to a US bank taking 4 hops in between over peering banks. The process is complex.

Because unlike domestic transfer where the central bank helps keep a ledger between banks, there is no "global ledger" internationally. So banks have to resort to "correspondant banking" which is why you see so many hops in international transfers.

Bitcoin provides such global ledger. I don't think FOREX is the issue here.

Instead of going through correspondent banking (many hops), 2 banks can simply send bitcoin to each other and immediately net off.

Could you clarify if my understanding is incorrect?

EDIT: Here is a document on how VISA handles international payments

http://www.bis.org/publ/cpss53p16.pdf

2.3.3 Clearing and settlement procedures ... Settlement is not carried out through Base II; Visa merely provides the data to allow settlement to be carried out. For settlement in US dollars, Chase Manhattan Bank, New York, acts as the settlement bank. For multicurrency settlement, Chase Manhattan Bank, London, acts as the settlement bank. All members may hold their own settlement account with any other financial institution, such that all requests for funds or payments are ultimately settled through the correspondent services of domestic clearing and settlement systems. ...

Remember that many (most?) recipients of international remittances don't have bank accounts or access to payment cards. Hence why Western Union et al have to maintain extensive agent networks.

As for visa, I wrote about it recently here: http://gendal.wordpress.com/2014/07/05/why-the-payment-card-...

The thing to remember is that Visa authorisations are done in near real-time but settlement between issuers, Visa, acquirers and on to merchants is done over the normal banking system, as far as I know.

Does it mean that even if it goes through the VISA network. Actual settlements still have to hop through layers of peering banks?

Do you see an advantage for bitcoin then by removing the need of peering banks?

I don't know enough about Visa's design to comment authoritatively - but my working assumption is payments from issuing to acquiring banks in-country are done net and through visa - i.e. one net payment per issuer into visa and one net payment out to acquirer. e.g. see the last page of this doc: https://usa.visa.com/download/merchants/visa-core-principles...

What isn't obvious to me is what happens in international scenarios - you ask a great question.

[EDIT] - Actually - here's your answer.... See section 2.3.3 of this doc: http://www.bis.org/publ/cpss53p16.pdf

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