W3C home > Mailing lists > Public > public-interledger@w3.org > January 2016

Re: How do bank payments actually work?

From: Melvin Carvalho <melvincarvalho@gmail.com>
Date: Sun, 24 Jan 2016 01:23:23 +0100
Message-ID: <CAKaEYhJU7hcpqOtm5M6s2aPNRNHgup9xg13fVU5vnRqGtV24bg@mail.gmail.com>
To: Fabio Barone <holon.earth@gmail.com>
Cc: Joseph Potvin <jpotvin@opman.ca>, Web Payments <public-webpayments@w3.org>, Interledger Community Group <public-interledger@w3.org>, tomblomfield@gmail.com
On 23 January 2016 at 19:37, Fabio Barone <holon.earth@gmail.com> wrote:

> Please bear me with me for my ignorance...
> ..but I would like to understand this a tad better:
>    - I have seen similar ideas in complementary currency spaces, the idea
>    being that value can be exchanged over different currency circles
>    - It never took off because the underpinning values systems differ too
>    heavily - there's no way to , bridge a local money X with another Y,
>    there's too much difference in money design and value systems
> Now, my questions for these interledger exercices, are you guys talking
> about interledger,
>    - but based on the SAME currency as value exchange? Or different ones?
>    - based on fiat currency, and/or bitcoin?
>    - no currency at all, "just" sync records?
>    - generic interledger which would work no matter what resource the
>    ledger is actually focused on?
Personally, I would like to be able to cover all 4 cases, in different
layered workflows, that sit at a layer above the ledger technology.  ie
loose coupling between the ledger and the ledger communicaton ... that's
what im working towards

> Maybe my questions are completely off, if I in fact would have understood
> things completely wrong.
> Would welcome a brief clarification, thanks.
> 2016-01-23 10:04 GMT-05:00 Joseph Potvin <jpotvin@opman.ca>:
>> Two comments on the published description...
>> 1. "Banks pay a few pence per transaction, although no bank currently
>> charges customers for this service."
>> It's worth noting that this charging structure is suitable for
>> transactions greater then, say, about 2£. It would require a different
>> transaction fee structure to handle micropayments.
>> 2. "Three times a day, VocaLink will send a message to all participant
>> banks informing them of their position. To “settle” the funds, participant
>> banks have accounts at the Bank of England. They will either make a single
>> payment to FPS (if money has flowed out of their bank), or receive a single
>> payment (if the net transfer of funds is in their favour). This payment at
>> the Bank of England is just another double-entry in a ledger; the bank’s
>> settlement account is debited and the FPS account is credited with the same
>> amount."
>> I think perhaps this is mis-stating the operation by using words "make a
>> single payment to FPS" and "receive a single payment". I'm fairly certain
>> these are accounted for as loans, to which the "Bank rate of interest" is
>> applied. Please correct me anyone thinks I'm wrong about how this
>> particular settlement system works. I think that while the mechanics remain
>> true that it's "just another double-entry in a ledger", these show up in
>> the books as off-setting loaning and borrowing by the Central Bank, and
>> they include an interest rate which needs to be taken account of.
>> http://www.investopedia.com/terms/b/bankrate.asp
>> For those of you creating test environments, taking account of this
>> factor complicates the model in two ways. First directly, you would need to
>> attach some sort of index (the interest rate) to the inter-bank
>> transactions. Second, you would need to create an policy-motivated actor
>> (agent) who makes decisions about that index.* [I'll proceed a bit
>> off-topic here just to illustrate...] This is because this  "the Bank Rate"
>> which is the benchmark by which a Central Bank motivates increases or
>> decreases for all interest rates of the given currency zone. The 'fun'
>> start to happen when a central bank decreases an interest rate in order to
>> simultaneously incentivize capital investments (its cheaper to borrow) and
>> decrease forex traders' demand for that currency (better returns on static
>> deposits are found elsewhere) in a period of competitive currency
>> devaluations, all of which artificially stimulates that country's export
>> market. Well, they've all been doing that for a while, and have run out of
>> room at the bottom. But they keep going!
>> http://www.bloombergview.com/quicktake/negative-interest-rates
>> <http://www.bloombergview.com/quicktake/negative-interest-rates>  *
>> [Back on-topic...]  Any model of payment must be a simplication of
>> complex reality, so this is not a critique of the published description as
>> far as it goes. I just raise a caution that with a title like "How do bank
>> payments actually work?", this summary of some of the mechanics of the
>> system inevitably has to leave out much of how bank payments actually work.
>> I've c.c.'d the author, Tom Blomfield, in case he'd like to comment.
>> Joseph Potvin
>> Mobile: 819-593-5983
>> On Wed, Jan 20, 2016 at 6:03 PM, Melvin Carvalho <
>> melvincarvalho@gmail.com> wrote:
>>> Interesting post on the inter ledger element of banking.
>>> https://getmondo.co.uk/blog/2016/01/20/how-do-bank-payments-work/
>>> Im thinking of simulating this on a testnet for people to play around
Received on Sunday, 24 January 2016 00:23:54 UTC

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