Massive Chinese document on Ripple etc, translated into English

[HAL1000]

https://pic.bankofchina.com/bocappd/rareport/202207/P020220725580591661963.pdf

Below is an English translation of the above linked document, done by me through google translate, so if any of it is wrong, please don't blame me

The page numbering is not the same as the document as I just did it page by page, also anybody connected to King Solomon or Darren Moore Jnr please send them a link to this page (it's the type of thing they love to wade through). Thanks to @WrathofKahneman for this find, this took over 2 hours of my ever shortening life :), to translate, so if you want to show some appreciation, then send anything you can to help Kentucky, as I have a friend there, who I have not heard from for a week, massive floods there, if you haven't been watching the news...

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US fintech company Ripple is making cross-border payments Research on the development prospects of the field*

Cross-border payments have always been at the heart of modern economic activity, and Today, the global cross-border payment field is undergoing unprecedented changes. Fintech companies have emerged as a strong emerging force. made by Ripple As one of the "best", the core business is to use the Ripple network Manage cross-border payments and remittances. In this paper, by studying the product characteristics of Ripple, Analyze its advantages and disadvantages, and judge the future development space and uncertainty of Ripple qualitative. It is recommended that commercial banks consider compliance, stability, liquidity, Make careful balances in terms of independence and other aspects, and be cautious on the premise of controllable risks Partner with Ripple.

Page 2 - International Financial Review

Research on the development prospects of the US financial technology company Ripple in the field of cross-border payment

For a long time, the cross-border payment system has been an important infrastructure supporting international trade and investment. nearly half a lifetime Since the beginning of the century, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) and correspondent banks have played an important role in the cross-border payment system. Shaky traditional dominance. Today, in the emergence of new products, technological upgrading, changes in user needs, non-traditional Under the influence of multiple factors such as the challenge of traditional financial power, the global cross-border payment ecosystem is undergoing a transformation. finance As an emerging force, technology companies use technological advantages to promote the innovation of cross-border payment models, while helping to improve Efficiency of global cross-border payments. Ripple, a financial technology company in the United States, is a typical example. This paper studies the product features of Ripple by Sign, analyze its advantages and disadvantages, and judge the future development space and uncertainty of Ripple. It is recommended that commercial banks start from compliance Carefully weigh the aspects of stability, liquidity, neutrality, etc., and prudently and Collaborate with Ripple.

1. The development process of Ripple

Ripple originated in the United States and was founded by Chris Larson and Jed Mike Caleb in San Francisco in 2012. The co-founded multinational company, formerly known as OpenCoin, changed its name to Ripple Inc in October 2015. Ripple's core business is to use the Ripple network to process cross-border payments and remittances. The core of its network is open source, The distributed Ripple protocol enables multi-currency, instant, and low-cost global transfers. this agreement It is a new mode of cross-border payment and remittance, which has the advantages of fast speed and low cost. In the early stage of development, its users were limited to a few isolated small circles, that is, two people who trusted each other had to join at the same time. into the Ripple network, otherwise it will not be able to use its main functions. In 2013, Ripple made a major adjustment to the product mechanism. integrated and developed rapidly. From May 2014, Germany's Fidor Bank became Ripple's first user, such as Today, Ripple has covered more than 400 financial institutions in many countries in the field of cross-border payment, including Bank of Merrill Lynch, U.S. National Bank, Santander Bank, Standard Chartered Bank, Canadian Imperial Bank of Commerce, Abu Dhabi National Bank, Japan Swiss Bank Sui Financial Group, etc. In 2020, Ripple joined the ISO20022 standards organization, becoming the first organization to focus on distribution Member of Distributed Ledger Technology. After years of development, Ripple is not only a giant in the blockchain project, but also the entire

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Emerging giants in the fintech space. Top 10 Most Valuable Private Companies in America in 2022 by Forbes Magazine Ripple is fifth on the list of fintech companies with a valuation of $15 billion, up from 2020 Up $5 billion. Of course, Ripple's development has not been smooth sailing. December 2020, U.S. Securities and Exchange Commission (SEC) The lawsuit is the first major setback for Ripple in the United States. SEC charges the company and its co-founders Without registering its native Ripple as a security, it did a $1.3 billion sale. After that, Ripple was exchanged by many The exchange banned trading, and the market value of Ripple fell for a while. Ripple is actively fighting to establish Ripple as non-certificate voucher tokens. Since April 2021, U.S. District Judges have made several decisions in favor of Ripple, making some investments regained confidence. But this is not a definitive verdict on where the lawsuit is headed, and as of July 2022, the lawsuit is still pending final verdict. In addition, the business partnership between Ripple and money transfer company MoneyGram will be completed in 2021. Bottom end. Ripple's development in China has not been smooth. Ripple China gateway, official recharge, account transaction It has been closed before, and the original currency in the user's account can only be withdrawn and withdrawn.

2. The core composition of Ripple's product mechanism

At present, Ripple's product mechanism is mainly composed of payment protocol, consensus bookkeeping mechanism, market maker mechanism, Ripple and The gateway is composed of five core parts.

(1) Payment Agreement

"Payment protocol" is an interoperability for financial transactions designed for worldwide transfers and payments. A networking protocol that provides a standard for payment systems that can be used for multi-currency, instant, low-cost payments to the world Transfer money anywhere in the world.

(2) Consensus bookkeeping mechanism

The "consensus bookkeeping mechanism" is a distributed ledger shared by the entire network, allowing distributed nodes built on the entire network to pass through the A consensus is established to verify transactions and book accounts, without any trust center, to ensure that each transaction is valid on all bookkeeping nodes Consistent and immutable.

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(3) Market Maker Mechanism "Market Maker Mechanism" means that financial institutions such as banks, money changers and other financial institutions can act as market makers for the Ripple network. Provide liquidity, enabling direct peer-to-peer payments. The market maker mechanism can effectively reduce costs and provide The exchange rate level of market competitiveness, the Ripple network also finds the optimal exchange rate level through the algorithm, and at the same time can improve the exchange rate level. Payment efficiency, anytime, anywhere for cross-border payment services.

(4) Ripple Coin "Ripple" is the base currency of Ripple, which mainly has the dual role of bridge currency and security guard. exist The Ripple network allows transactions in various fiat currencies such as USD, EUR, and RMB, as well as virtual tokens such as Bitcoin, while Ripple acts as the role that gold and the U.S. dollar once did in the traditional financial monetary system, linking all currencies. because As long as this currency can be linked to Ripple, it can be linked to any other currency. Ripple Coin Set at 100 billion, each Ripple account requires at least 20 Ripple coins, and each transaction needs to destroy 100,000 points One of Ripple. When someone maliciously attacks the system, a large number of spam transactions prompt the rapid listing of Ripple coins that need to be destroyed liters, quickly draining the attacker's Ripple coins. This means that the attack cost of Ripple is extremely high and the system security is high.

(5) Gateway

A "gateway" is the gate through which money flows in and out of the Ripple network, similar to a money deposit and exchange institution, allowing the use of Users can inject or withdraw fiat currency and virtual currency into or out of the Ripple network, and can act as a bridge between payment parties. also, Ripple launched RippleNet's cross-border payment solution, offering a wealth of financial products (Table 1).

 

Table 1: Basic information of Ripple's financial products

Serve          user target audience         USE        Acceptance

xCurrent   /   Financial institution       /     To provide interoperability between customers in any or all currencies, banks can issue Bank own credit certificate, real-time data synchronization between banks, to achieve fast, convenient, low-cost End-to-end cross-border transfers of costs.   /    higher

 

xRappid   /   SMEs and personal     /    A solution that provides liquidity assurance by using xCurrent to pay for services via Ripple service   /   wait and see 

 

xVia       /      SMEs and personal    /    Using the standardized API interface of Ripple's network services, users can directly use this interface Using the functions of xCurrent and xRapid without downloading the client, it is a lightweight product products, which will help the Ripple network to be applied in more scenarios   /    not yet widespread

ODL        /     Financial institution    /    To use Ripple as a medium for cross-border transfers, one financial institution needs to transfer the local fiat currency Exchange it into Ripple, and then the other financial institution will convert the received Ripple into the country's legal currency, Reduce the liquidity cost of funds    /    higher

Source: Compiled by the author based on public information

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3. The main advantages of Ripple in the development process

In the field of cross-border payment, Ripple has the following development advantages.

(1) Only one account needs to be opened. Compared with the traditional cross-border payment relying on the bank's multi-account clearing and settlement model, it is extremely Greatly reduce capital costs

In traditional cross-border payment, a transaction needs to be processed by the opening bank, the remittance bank, and the beneficiary bank to complete. Each financial institution has its own accounting system, and they need to establish account relationships with each other, and each transaction must be Recording, clearing and reconciliation with counterparties in different systems. If you do business in different banks, you need to open multiple This means that each account needs to occupy funds, and the efficiency of fund use decreases. Instead use the Ripple service Only one account is needed, and multiple businesses of different banks can be operated through this account, which not only reduces the occupation of funds, And effectively improve the efficiency of capital use. If you use the credit line service of Ripple ODL products, you can even apply for credit business.

(2) Flexible and low-cost pricing methods, compared with traditional cross-border payments relying on financial system networks and payment systems The high cost of unified management has obvious price advantages

Ripple does not charge any transfer fees, but in order to ensure the safe operation of the system, each Ripple account is required to At least 20 Ripple coins, users need to consume 1/100,000 Ripple coins for each transaction, 1 Ripple in early June 2022 Wave can be exchanged for around $0.40, so transaction fees are largely negligible. In addition, traditional cross-border payment The required procedure costs are relatively fixed, and when the payment amount is low, the marginal average cost rises rapidly. while Ripple fixed the hand The renewal cost is low, and it can meet the lower and more fragmented payment amount, so as to meet the user's multi-scenario payment needs.

(3) Remittances based on the Ripple protocol can be processed in minutes or even seconds, greatly improving cross-border payments. Overseas remittance payment efficiency

Most of the traditional cross-border payment business needs more than one day to process (if the information is unclear, it needs to be checked. Inquiry and review, it will take longer), in fact, the transaction amount is forced to be "frozen" for a period of time. status, with potential delays, failures and liquidity risks. For large transactions or timeliness between companies For extremely high business, the opportunity cost is huge. And Ripple can reduce the traditional cross-border payment due to the long transaction time the above-mentioned risks.

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(4) The openness of Ripple brings a better service experience and lowers the threshold for remittance business, which in a certain sense promotes into financial inclusion

Ripple supports processing USD, EUR, RMB, JPY, etc. It can also handle virtual currencies such as Bitcoin, as well as things of value such as merchant points. Ripple can support fiat currencies Various businesses such as foreign exchange transactions, cross-border transfers, transfer payments, etc., realize automatic exchange rate conversion, and users can use Any type of currency, pay others any other type of currency, so as to realize the fullness of all currencies. network flow. In addition, since Ripple can be used as long as there is an Internet connection, the financial services provided by Ripple It can cover some areas with underdeveloped economy and insufficient number of traditional financial institutions.

4. Challenges and obstacles faced by Ripple’s development

Ripple makes payments between merchants and customers, and even developers, almost free, supporting a variety of fiat currencies, even It is also possible to use Bitcoin, etc., which are highly expected by many investors and users to break the monopoly of SWIFT. But the thing In fact, it is not easy for Ripple to make a difference in the field of cross-border payment, and it needs to solve supervision, technical security, anti-money laundering problems, and the stability of Ripple will also affect customer confidence.

(1) Banks will face greater regulatory and legal obstacles when using Ripple services

Fund clearing service is the core business of the bank, which involves the financial security and stability of the country. Ripple services struggle to get regulatory approval. At present, virtual currency trading activities have been banned in many countries around the world. Prohibited, in our country it is illegal financial activities.

(2) Ripple products currently have many hidden technical security risks

One is that the gateway acts as a channel for Ripple's funds to enter and exit. Birth and other reasons were accused. Second, malicious attackers can use the open source of the Ripple protocol to create a large number of "garbage accounts" Accounts” caused the network to crash. Although Ripple requires each account to hold at least 20 Ripple coins to reduce the probability of occurrence, But this problem has not been completely solved. Third, the Ripple code can only be maintained and modified by the company, and the company controls Nearly 40% of the verification nodes are controlled, and the participating institutions lack the right to speak. Fourth, the reliability of the Ripple product itself is still lacking Sufficient proof, it may lead to operational and safety issues, with potential uncertainty.

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(3) Lack of effective channels for understanding customers, exposing high money laundering risks

Important confidential information is not stored on a shared ledger, only bilaterally through encrypted peer-to-peer (P2P) interactions exchange, Ripple is not responsible for anti-money laundering. Ripple is also unable to fully control transaction information in a timely manner, and it is easy to become a fraud. channel of legal funds. In addition, the decentralization of the Ripple protocol, the anonymity of transactions and poor traceability, etc., further Increase compliance risk.

(4) The currency value of Ripple is less stable, which brings liquidity risks

Market makers have different currency accounts to assist both parties in currency exchange, and banks can choose by themselves Market makers trusted by Ripple or algorithmically recommended by the Ripple network for the best exchange rate levels. However, the market maker's Qualifications lack credibility and may lead to liquidity risks. Furthermore, Ripple is exchanged as a different currency in the payment network The medium between them, such as being randomly issued and sold by Ripple, will cause the price to fluctuate greatly.

V. Research and judgment on the development of Ripple in the field of cross-border payment

Fintech has undoubtedly injected new vitality into the cross-border payment field. Traditional payment "established powerhouse" SWIFT is positive The pace of innovation is accelerating, and new competitors such as Ripple are emerging in the emerging payments space. On the one hand, Ripple needs to It is necessary to cooperate with SWIFT in business, technology, etc. for common development; on the other hand, Ripple needs to find the right position, Only by forming a differentiated advantage can we continue to grow in the cross-border payment market where "there are tigers in front, and there are chasers behind".

(1) Ripple and SWIFT promote each other and develop together

SWIFT has a wide range of customers and business bases, and has formed a relatively sound and complete anti-financial in the process of development Crime and compliance mechanisms, in sanctions compliance, KYC (know your customer), compliance data analysis, fraud prevention, etc. It provides a variety of solutions, and its powerful data management mechanism protects the identity and transactions of participants and obtains supervision Approved. However, the rapid development of FinTech puts more and more demands on SWIFT, which is limited by its traditional system structure. Constraints, SWIFT remittances lack timeliness, and the cross-border payment information chain is long, which can easily lead to information loss. Ripple's The emergence of "catfish effect" caused a ripple in the field of cross-border payment1. SWIFT accelerates the pace of innovation and change, Launched new products such as SWIFT GPI/GO, and will promote the ISO20022 message format by the end of 2022 (Table 2).

1Ripple means ripples in English.

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Table 2: Comparative analysis of Ripple and SWIFT GPI

CRAZY AMOUNT OF FORMATING ON THIS PAGE SO - IT'S A MESS YOU WILL HAVE TO SORT THROUGH:-

Contrast dimension Ripple SWIFT GPI Management team Unstable staff, elite team Stable staff with rich experience Access threshold Open to banks and individuals, using the Internet is Accessible There are strict conditions for joining, divided into members (shareholders), sub-members For members and ordinary users, the bank needs to pay the membership fee and Annual fee, establish an effective security system to prevent payment risks and systemic risk Handle currencies 120+ fiat (digital) currencies; virtual goods 150+ fiat currencies Payment efficiency within 5 seconds, 7×24 hours of uninterrupted 50% can be completed in 30 minutes, 99% can be completed in 24 hours Completed in time; SWIFT needs to suspend service due to upgrade and transformation transparency With a shared ledger, senders can Uncover transfer details and know within minutes that the transfer was no success Use cloud data to instantly query progress Security Information about key information, actual transactions and private keys All information is encrypted data Dedicated communication network among members, secure login terminal system, Packet encryption, packet integrity check, sender identity authentication Don't wait, ensure the security, integrity and inability of the transaction Denial remittance process the complexity Implemented using gateways and paths, there is no arbitrary no restrictions, no prerequisites or enabling Terms of use The payment information and the settlement process are separated, and the intermediate links and the machine There are many structures, requiring multi-party inquiries and certifications

data integrity The receiving and paying bank completes the into KYC and anti-money laundering information, transaction information, Payment fee, foreign exchange rate (if any), payment Easy details, expected time for delivery of funds, etc. exchange of interest. Intermediate process does not produce information lost or tampered with Remittance of transaction fee, transaction details and estimated payment time The payer is transparent, and the remitter provides a postscript The remittance information can be fully transmitted to the recipient, and guarantee The middle line cannot tamper with the message content. Track status via messenger (Messenger), business or personal Humans can achieve end-to-end tracking Businesses or individuals track payment instructions in real time throughout the day and get Feedback on Total Payments Campaign Fees Minimum 0.00001 Ripple For individuals, the telecommunications charges of different institutions are roughly the same, Hong Kong and Macao Taiwan 80 yuan/pen, the remaining 150 yuan/pen, large users for fixed rates Daily transaction volume 2.4+ billion USD (transaction volume using ODL) 3 trillion USD Covering countries 50+ 200+ Participating Institutions 300+ 11000+ Regulatory Approval Difficult Easy Source: Compiled by the author based on public information

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Ripple solves the problems faced by small and medium-sized banks in cross-border payment business with multi-layered correspondent banks, high fees, transactions Due to the long time and other problems, it has won some financial institution customers, and also satisfied a large number of small and medium-sized enterprises and individual consumers. The demand for high-frequency and small-amount peer-to-peer and fast payment has occupied part of the market. But in trade, investment and finance In terms of settlement of large funds such as the market, it is still unable to compete with SWIFT. In the short term, Ripple is hard to shake SWIFT Position in the field of cross-border payments. In the long run, the two sides will learn from each other, promote each other, learn from each other's strengths and complement each other's weaknesses, and jointly same development.

(2) The homogenization competition is fierce, and the development space of Ripple is limited Ripple does not have an exclusive advantage in the field of cross-border payment, and the blockchain technology used in its products has been adopted by a Some commercial banks and leading enterprises are concerned. These institutions are trying to build an exclusive blockchain payment system. The degree of compression of Ripple's development space in the field of cross-border payment. For example, Wells Fargo, Bank of Exchange, French R3, a blockchain consortium composed of more than 50 international financial institutions such as BNP Paribas and Bank of Montreal, has launched a blockchain consortium for Corda customized for financial institutions; JP Morgan, Microsoft, Accenture, Santander, BNY Mellon, UK More than 30 institutions such as Tel have established the Enterprise Ethereum Alliance (EEA), using the clone chain of Ethereum, Quorum, At present, there are hundreds of members, many of whom are researching development projects based on the Ethereum blockchain and issuing tokens. JP Morgan has launched JP Coin (Table 3).

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Table 3: Blockchain Research Status of Some Institutions Time Institution Name Blockchain Application Research In April 2016, the Bank of England and the University of London carried out the experimental project of encrypted legal currency RSCoin In June 2016, the Bank of Canada explored the CAD Coin issued by the blockchain for large-value payment, clearing and settlement In September 2016, the European Central Bank and the Bank of Japan jointly launched the blockchain cross-border payment project Stella November 2018 The Monetary Authority of Singapore, the Bank of Canada and the Bank of England jointly study a blockchain-based interbank large-value payment system In June 2019, UBS cooperated with dozens of financial companies such as Barclays and Nasdaq to develop a blockchain technology settlement system In June 2019, Facebook released the digital payment tool Libra white paper 1.0 January 2020 Siam Commercial Bank Thailand Siam Commercial Bank partners with Ripple to create blockchain-powered mobile app September 2021 American Asset Management Company Landscape Shun Invesco Applies to the Securities and Exchange Board of India to launch the first ETF to invest in international blockchain companies Invesco CoinShares Global Blockchain ETF FoF June 2022 Korea Telecom SK Telecom SK Telecom and two blockchain companies jointly develop a digital asset wallet that allows users to store, Transmit and receive various types of tokens issued on the blockchain network Source: Compiled by the author based on public information

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As far as my country is concerned, major financial institutions have carried out research and application of blockchain. For example, Bank of China through the district The blockchain cross-border payment system successfully completed the international remittance of US dollars between customers in Xiong'an, Hebei and Seoul, South Korea; China Merchants Bank The Bank has completed the first cross-border RMB inter-bank clearing business based on the blockchain technology clearing platform; Standard Bank of South Africa launched innovative products such as the China-Africa blockchain letter of guarantee platform; Bank of Beijing uses blockchain technology to empower Supply chain finance can effectively solve the financing problems of small, medium and micro enterprises and improve financing efficiency. Other agencies are also actively developing Research on blockchain (Table 4).

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Table 4: Blockchain application in some institutions in my country Time Institution Name Blockchain Application January 2018 Shanghai Commercial Paper Exchange The experimental production system of the digital paper trading platform was put into production and successfully operated June 2018 Ant Financial launched its blockchain-based e-wallet cross-border remittance service in Hong Kong August 2018 Bank of China Domestic commercial banks apply blockchain to personal cross-border remittance business September 2018 Digital Currency Research Institute successfully tested blockchain trade finance platform March 2019 State Administration of Foreign Exchange Cross-border financial blockchain platform July 2020 Bank of Communications Financial blockchain platform "Domestic foreign exchange transfer and payment platform for sea freight" May 2021 Ant Chain and CAICT Ant Chain and CAICT jointly launched the world's first general data privacy protection on blockchain protect international standards May 2022 China Trade Finance Interbank Exchange Easy Blockchain Platform China's trade finance inter-bank transaction blockchain platform pilot led by the China Banking Association Online Accounts Receivable Transfer Information Service System Source: Compiled by the author based on public information

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(3) Legal digital currency (CBDC) brings new challenges to Ripple The development of the digital economy and the rise of "private digital currencies" such as Ripple have prompted central banks to accelerate the "fiat digital currency". The research and development process of “digital currency”. Under the impact of the new crown epidemic, the advantages of electronic payment have become prominent, which has prompted the research and development process of CBDC Keep speeding up. Central banks around the world are highly concerned about CBDC. In 2020, the G20 proposes to create cheaper, faster and more resilient A comprehensive cross-border payment roadmap, clearly stating that CBDC should be included in research and development, and considering the possibility of building a new cross-border payment multilateral platform. feasibility. According to the Bank for International Settlements (BIS) survey, by the end of May 2022, about 90% of the world's central banks are About two-thirds of the research into CBDC is in trials or proof-of-concept. Fed shifts from relatively negative stance to review

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Carefully evaluate digital dollar projects. The European Central Bank accelerates the research and development of a digital euro, which will become a supplement to cash instead of The replacement is expected to be put into use in five years. There are various design options for CBDC, and one of the important questions is whether the CBDC is wholesale or retail. Currently, The Ubin project led by the Monetary Authority of Singapore mainly focuses on "wholesale CBDC". The Ubin project has 5 districts successively. Blockchain companies and more than 40 financial institutions have participated, and the first five stages of trials have all been successful. Step into practice. The digital yuan is a "retail CBDC". my country is also the first in the world to carry out CBDC research As one of the countries that research, test and issue, as of the end of May 2022, the number of digital RMB transactions has reached 260 million, The transaction volume exceeds 80 billion. The issuer of legal digital currency has a national credit endorsement, which is naturally superior to private digital currency such as Ripple. The security, compliance, and stability of the coin (Table 5).

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Table 5: Ripple and CBDC comparative analysis Contrastive Dimensions Ripple CBDC Management Team Instability, Elite Team Regulators Essential attributes Virtual commodity Fiat currency Value scale Private credit, with value fluctuations based on changes in market supply and demand National credit, stable pricing Legal nature Non-repayable and universal Compensation status Security The key information, actual transaction and private key related information are all Encrypted data Mature security technology architecture Compliance Decentralization, transaction anonymity, difficult to trace Controllable anonymity, traceability Payment and settlement system Internet-specific payment and settlement platform Central bank system, regulatory background operating agencies (mutually Connectivity platform) Transparency Through a shared ledger, senders have real-time visibility into transfer details You will know within a few minutes whether the transfer is successful or not, and feedback the account status immediately. Covering countries 50+ more in home country Fees are low, minimum 0.00001 XRP Free Source: Compiled by the author based on public information

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The advantage of CBDC mainly lies in its legal currency characteristics. But in the field of cross-border payments, a single-country CBDC is difficult To complete cross-border payment, it is necessary for many countries to jointly study and solve cross-currency, interoperability and other issues. BIS compares the Three different ways for CBDC to achieve cross-border and cross-currency interoperability: one is to enhance the CBDC standards of different countries and Capacitance. The second is to realize the interconnection of CBDC systems in different countries. The third is to establish an integrated CBDC interoperable payment system. target Previously, the multilateral central bank digital currency bridge project (mCBDC Bridge) participated by the People's Bank of China belongs to the third type. The project has progressed to the third stage and will reduce liquidity costs, exchange costs, compliance cost etc. The use case manual released by the project team shows 15 kinds of international trade settlement, cross-border e-commerce, cross-border insurance, etc. Potential application scenarios and testing progress, and the settlement of an equivalent amount of about RMB 2 billion has been completed.

In the long run, the development of CBDC in the field of cross-border payment is a "double-edged sword". currencies of major economies Based on the existing advantages of the bureau, the research and development of CBDC is still in the proof-of-concept stage of the project. traditional cross-border The problems faced by the ecological development, CBDC is also unavoidable. This requires constant communication and coordination among central banks around the world to explore future Come to CBDC for various possible solutions for cross-border payment, and at the same time drive the upgrading of related financial infrastructure. overall In other words, CBDC has natural credibility, huge potential transaction volume, and bright development prospects. CBDC interoperability in multiple countries Once the operational issues are resolved, Ripple will add a strong competitor in the cross-border payments space.

6. Suggestions on cross-border payment cooperation between commercial banks and Ripple Ripple can reduce liquidity and remittance costs, reduce cross-border payment intermediate links, and improve efficiency. Occupy a certain market share in banking and low-end customer transactions. However, commercial banks directly cross-border with Ripple The risk of payment cooperation is relatively high, and the following prerequisites need to be met.

(1) Compliance with regulatory requirements to ensure compliance and safety With the continuous expansion of Ripple's volume, the degree of regulatory attention is increasing, which needs to be in corporate governance, network Significant improvements have been made in node design, anti-money laundering compliance, system and network security. In terms of corporate governance, Ripple relies on the network founders and developers to arbitrarily formulate an internal governance framework and choose to It is implemented through technical codes and lacks effective internal governance control requirements. Ripple should further strengthen corporate governance and lead Invite more stakeholders to form a board of directors to jointly manage the company and supervise the daily operations of the company camp.

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In terms of network node design, the entire transaction chain is completed in a closed network within the platform, and data protection is completely determined by The platform itself cannot be effectively regulated. The design of network nodes needs to be agreed with regulators to facilitate supervision Institutions conduct controls that allow regulators to identify transactions that are suspected of fraud, money laundering, or other criminal activity.

In terms of anti-money laundering compliance, although the Ripple xCurrent product is designed to connect Ripple for each receiving and paying bank The network provides anti-money laundering ports. At the same time, banks can exchange customer information through the Ripple network for KYC and AML screening. However, the anti-money laundering solution has not been approved by the regulatory authorities, and further industry consensus is still needed. The "Travel Rule 2" needs to be applied for valid conversion in Ripple.

In terms of system and network security, in cross-border scenarios, each node is arranged in different countries and regions, facing the External network environments vary. Once a node with relatively weak security is breached, its protocol sharing features It will expose the information and data of the entire trading network to the risk of leakage, which will have a negative impact on the entire trading system. to this end, Ripple should work with regulators to strongly supervise the interface between the network and the real world, and adopt reliable access measures to eliminate cybersecurity risks. In addition, the processing efficiency of the system has not yet met the needs of large-scale financial transactions. It will take time to further test and meet the regulatory system stress test requirements.

(2) Circulating currency stability management to ensure payment security The Ripple currency launched by Ripple has a tendency to become a speculative tool, which threatens financial security and social stability. certain potential risks, to maintain the stability of Ripple. On the one hand, by anchoring various legal currencies in reality, Such as the US dollar, a basket of currencies, or a combination of commodities to form a stable exchange rate. On the other hand, it is necessary to ensure that The currency has a stable support, preferably a 1:1 reserve, and the safety and liquidity of the reserve must be guaranteed ensure. As it relates to public confidence in the currency, disclosure of relevant reserves must be timely and clear and audited

2 The "Travel Rule" was proposed by the US Financial Crimes Enforcement Network (Fincen) in 1996 and is the part of the “money” standard. In March 2013, the rule was expanded to apply to cryptocurrency exchanges. Financial Action Task Force (FATF) is an intergovernmental organization dedicated to combating money laundering and terrorist financing. Its Licensing and Regulation in Cryptocurrencies A similar “travel rule” has been proposed, requiring cryptocurrency exchanges in all jurisdictions to perform “KYC (Know Your Customer)” obligation to identify the originator and beneficiary of funds, while providing for virtual asset service providers or VASPs must share information from senders (originators) and receivers (beneficiaries) in cryptocurrency transactions that exceed certain thresholds, And keep the relevant information in a safe place for the authorities to conduct money laundering and terrorist financing reviews.

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The operation is transparent and avoids the risk of running. In addition, Ripple needs to make a risk reserve in order to make its own The user will be compensated for any property damage caused by the reasons.

(3) Strict market maker management to ensure liquidity safety Market makers decide whether to join or not, and there is a lack of transparency in the review criteria for joining. foreign exchange market The market is easily affected by the external environment, and the pressure of liquidity is caused by major risks and emergencies such as the financial crisis and "black swan". increased sharply during the period. The reputation and qualifications of liquidity providers are particularly important, at least they must meet the requirements of a strong financial background, It is not easy to encounter bankruptcy problems, sufficient regulatory qualifications, and no major bad records in the past. Market makers' trade execution systems must meet high standards. First, the transaction settlement time should be in milliseconds, and The transaction process is completely transparent, and there can be no refusal to deal or repeated quotations. The second is in the "black swan" During the period of major risks or emergencies, when the system faces special circumstances such as a surge in transactions, the robustness and security of the system Sex needs to be guaranteed to achieve risk isolation. Third, for cross-time zone transactions, the service level and quality must be guaranteed. That is, relevant executive personnel and institutional arrangements must be in place to ensure uninterrupted service around the clock.

(4) Solving the issue of neutrality becomes the key to future development Western countries have taken SWIFT as an important tool to implement financial sanctions, and the future cross-border payment system is Whether neutrality can be maintained will become one of the key trade-offs and considerations for users. Ripple as Native American A fintech company is inevitably subject to the influence of US regulators. As a commercial bank, it should be carefully considered Considering, in the absence of effective means to avoid the risk of SWIFT sanctions, whether using Ripple will step into another "American Trap".

Edited July 31, 2022 by HAL1000

[WrathofKahneman]

Wow, @HAL1000 thank you!  It's an interesting document - there are some inaccuracies but overall some telling insight into how China views Ripple and global economics.  Clearly, they're not thrilled with SWIFT