The Eurosystem, the Dutch payment system and the Macedonian payment system
International Payment System
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Transcript of International Payment System
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ASPA GURUKOOL
InternationalInternationalPayment SystemPayment System
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Payment Terms Adapted inPayment Terms Adapted in
Foreign TradeForeign Trade Clean Payments ( NoClean Payments ( No IntermidiationIntermidiation))
Advance or Open AccountAdvance or Open Account
OnConsignment (costlydueto consignmentOnConsignment (costlydueto consignmentcommission)commission)
DocumentaryBills (D/PDocumentaryBills (D/P--onsightdraft &onsightdraft &
D/A, AftersightDraft)D/A, AftersightDraft) Letter ofCreditLetter ofCredit
FactoringFactoring
ForfeitingForfeiting ASPA GURUKOOL
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RTGSRTGS
TheinterTheinter--bankfundstransfersystemin Indiabankfundstransfersystemin India
can beclassifiedinto the Batch Mode (Net)andcan beclassifiedinto the Batch Mode (Net)and
RealTime (Gross) System. Ina Batch Mode, theRealTime (Gross) System. Ina Batch Mode, thetransmission, processingandsettlementisdonetransmission, processingandsettlementisdone
foraset oftransactions (sayforaset oftransactions (saychequecheque clearingorclearingor
sale or purchase ofsecurities)ata particularsale or purchase ofsecurities)ata particular
point oftimeandthesettlement ona prepoint oftimeandthesettlement ona pre--fixedfixedinterval oftime (sayattheend oftheday).interval oftime (sayattheend oftheday).
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RTGSRTGS RTGS systemisafundstransfermechanism whereRTGS systemisafundstransfermechanism where
transfer ofmoneytakes placefrom one banktotransfer ofmoneytakes placefrom one banktoanother ona RealTimeand on basis.Thisistheanother ona RealTimeand on basis.Thisisthe
fastest possiblemoneytransfersystemthroughthefastest possiblemoneytransfersystemthroughthe
bankingchannel. Settlementin RealTimemeansbankingchannel. Settlementin RealTimemeans
paymenttransactionisnotsubjectedto anywaitingpaymenttransactionisnotsubjectedto anywaiting
period.Thetransactionsaresettledassoonastheyperiod.Thetransactionsaresettledassoonasthey
are processed. Gross Settlementare processed. Gross Settlement meansthemeansthe
transactio
nis
settled
on
one
to o
neb
asisw
ithou
t
transactio
nis
settled
on
one
to o
neb
asisw
ithou
tbunchingwithanyothertransaction.Consideringthatbunchingwithanyothertransaction.Consideringthat
moneytransfertakes placeinthe books ofthemoneytransfertakes placeinthe books ofthe
Reserve BankofIndia, the paymentistakenasfinalReserve BankofIndia, the paymentistakenasfinal
andirrevocable.andirrevocable. ASPA GURUKOOL
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Advantages ofRTGS :Advantages ofRTGS :
1.1. SincethefundstransferinstructionsareSincethefundstransferinstructionsare
processedandsettledinrealtime, theprocessedandsettledinrealtime, thecreditcredit andliquidityrisksareeliminated.andliquidityrisksareeliminated.
2.2. Thisleadsto aseamlessmovement offundsThisleadsto aseamlessmovement offunds
from oneendto another usingthe ITfrom oneendto another usingthe IT platformplatformandreducesthesystematicrisksintheandreducesthesystematicrisksinthe
settlementsystem.settlementsystem.
3.3. Asthefundsarereceivedinstantlyonline, inAsthefundsarereceivedinstantlyonline, inthe RTGS system, thecollectingbanksandtheirthe RTGS system, thecollectingbanksandtheir
customerscan usethefundsimmediatelycustomerscan usethefundsimmediately
withoutexposingthemselvesto settlementrisk.withoutexposingthemselvesto settlementrisk.ASPA GURUKOOL
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INDIAN SCENARIOINDIAN SCENARIO
The RealTime Gross Settlement (RTGS)systemThe RealTime Gross Settlement (RTGS)system
isacentralized paymentssystem operated bytheisacentralized paymentssystem operated bythe
Reserve BankofIndia (RBI)in India, to whichReserve BankofIndia (RBI)in India, to whichabout11330 branches of84 banksin Indiaareabout11330 branches of84 banksin Indiaare
linked.linked.
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Payment Mechanisms of BanksPayment Mechanisms of Banks
in International Payments.in International Payments. Banksaretheentitiesthat payandreceiveforBanksaretheentitiesthat payandreceivefor
and on behalfoftheclient.Thisis becauseand on behalfoftheclient.Thisis because
cu
sto
mersmaintain
an
acc
ount
with
the
cu
sto
mersmaintain
an
acc
ount
with
the
banks.
banks.
Customersmaybe payingbyCustomersmaybe payingbychequescheques oror
demanddraft oranyofthe paymentdemanddraft oranyofthe payment
mechanismsmentionedabove.mechanismsmentionedabove.
Bankershaveto effectthecreditBankershaveto effectthecredit--debitentriestodebitentriestofinallytransfercreditfrom one partyto thefinallytransfercreditfrom one partyto the
other party.other party.
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Continued.Continued.
Banks performthistaskbyeither passingcreditBanks performthistaskbyeither passingcredit--
debitmessage to its own branch.Thisisdonedebitmessage to its own branch.Thisisdone
whenthe bankhas branchesin both (payingandwhenthe bankhas branchesin both (payingand
receiving)locations. Ifthe bankdoesnothavereceiving)locations. Ifthe bankdoesnothave
branchesthen, correspondent bankshelp inbranchesthen, correspondent bankshelp in
completingthetransaction.completingthetransaction.
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:: Buyer A from India purchasesmaterialfrom Supplier BBuyer A from India purchasesmaterialfrom Supplier B
inthe United States.Thematerialis worth US$ 100.inthe United States.Thematerialis worth US$ 100.Prevailingexchange __ US$ = Rs. 46. Buyer APrevailingexchange __ US$ = Rs. 46. Buyer Amaintainsaccount with Indian SBI in Indianrupees.maintainsaccount with Indian SBI in Indianrupees.SBI (State BankofIndia)maintains US account withitsSBI (State BankofIndia)maintains US account withitscorrespondent bank,correspondent bank, BoNYBoNY (BankofNew York).(BankofNew York).Seller B hascurrentaccount withSeller B hascurrentaccount with BoNYBoNY.To effectthe.To effectthepayment, buyer A instructs SBI to debititsaccountpayment, buyer A instructs SBI to debititsaccountequivalentto Us$ 100, in Indian Rupeesi.e. Rs. 4600 Inequivalentto Us$ 100, in Indian Rupeesi.e. Rs. 4600 Ineffect SBI issuesaninstructiontoeffect SBI issuesaninstructionto BoNYBoNYto debitsitsto debitsits(SBIs)account byUS$ 100andcreditseller Bs(SBIs)account byUS$ 100andcreditseller Bsaccount withthesameamount.Thus buyerhasaccount withthesameamount.Thus buyerhaseffectivelypaidseller B, US$ 100.effectivelypaidseller B, US$ 100.
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Correspondent Banking :Correspondent Banking :
Type of Account Meaning Description ExampleNastro Our Domestic banks
account held witha foreign bank
Induslnd BankssAccount with .
Vostro Your Foreign banks
account withdomestic bank.
Scotia banks
account with SBI
Loro Their Third partyaccount.
London bank paying an amount
(to French bank)
by crediting
French banks'
account held withUS bank.
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Payment QueryPayment Query-- VehicleVehicle
CurrencyCurrency Itis obviousthat banksinalmostallthecountries oftheItis obviousthat banksinalmostallthecountries oftheworld wouldhavecorrespondent banksinallthestrongworld wouldhavecorrespondent banksinallthestrong
economies. Additionallytheyalso maintainsucheconomies. Additionallytheyalso maintainsuch
relationship withtheregionalcountries.relationship withtheregionalcountries. Inthisscenario, these banks wouldreadilyhave pricesforInthisscenario, these banks wouldreadilyhave pricesfor
thecurrencies ofthesemajoreconomies.Forinstance, Statethecurrencies ofthesemajoreconomies.Forinstance, State
BankofIndia would, ondemand, offer pricesfor US dollar,BankofIndia would, ondemand, offer pricesfor US dollar,
Pound Sterling(UK), Japanese Yen, Euro, etc. WhatPound Sterling(UK), Japanese Yen, Euro, etc. Whathappensifwe wantto exchange Indian RupeeforThaihappensifwe wantto exchange Indian RupeeforThaibaht? Itiscertainlynotcommonthat Indian banks wouldbaht? Itiscertainlynotcommonthat Indian banks would
havecorrespondentrelation withThailand.havecorrespondentrelation withThailand.
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PaymentPayment QueryQuery-- VehicleVehicle
CurrencyCurrency Certainlythough, allmajorThai banks wouldCertainlythough, allmajorThai banks would
havecorrespondent bankrelations withthe US.havecorrespondent bankrelations withthe US.Hence weshallhave onequotefor USDand INRHence weshallhave onequotefor USDand INR
andanotherfor USDand baht.Fromthesetwoandanotherfor USDand baht.Fromthesetwo
quotes wecancalculatetherequisitecurrencyquotes wecancalculatetherequisitecurrencypriceandeffectthetrade. Insuchcase, the USpriceandeffectthetrade. Insuchcase, the US
dollar would betermedas VehicleCurrency.dollar would betermedas VehicleCurrency. US dollaristhemostcommonlyusedandtheUS dollaristhemostcommonlyusedandthe
strongestvehiclecurrencyinthe Internationalstrongestvehiclecurrencyinthe International
marketso far.marketso far.ASPA GURUKOOL