The Financial World’s Nervous System Is Being Rewired
Article

The Financial World’s Nervous System Is Being Rewired

And It Is Not America That Is Doing It

The Economist
The Economist, 2020
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8

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Payment systems around the world are evolving rapidly, as legacy networks face competition from fintechs seeking more efficient ways to transfer cash. For example, China’s Tencent and Alibaba are building what industry observers term “parallel banking systems.” This concise but informative article on the geopolitics of finance reveals how these systems are as much about the movement of information as they are about the movement of money.

Summary

Payment transfer systems are conduits of information as they move money among individuals and businesses.

Unlike traditional intranational payment systems – in which banks communicate account identities and fund availability, and a country’s central bank ledger records cleared transactions – cross-border payments are more complex. No single rule book guides the process, and the absence of a global central bank precludes the ability to document money transfers internationally.

The common workaround for large-scale payment amounts is the correspondent banking system, through which money moves like a traveler making multiple connections to a destination. Each...

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The Economist is an independent weekly magazine covering business, foreign affairs, science and technology.

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