Default Risk in USD 4.86 Trillion Global FX Gross Payments

ST PETER PORT, Guernsey and NEW YORK, Oct. 06, 2021 (GLOBE NEWSWIRE) — Global FX Market trading amounts to US$6.6 Trillion per day or +/-US$1,716 Trillion per annum – but that number is applicable only to the Trading – and not the Gross Payment obligations arising from that trading.

The Gross Payment obligations are US$18.7 Trillion per day or US$4,862 Trillion per annum.

According to the Bank for International Settlements (“BIS”) Quarterly Review of 2019, almost half that US$4.86 Trillion per annum is at risk of default, due to it not being covered by any secured “Payment versus Payment” (PvP) structure.

Although most people who are not involved in the FX or related markets at a high level are not familiar with these markets, market values or the terms used for these transactions – they should be. This is because any default in these markets – and the risk of default grows every year – will affect every person and business in the world very seriously.

The 2008 Financial Crisis was also the result of a default. A different market – but the same process of default. A default in the Gross Payments process of the Global FX Market will cause a much more serious crisis than in 2008, because the volumes and values involved in this default will be very much higher.

Moreover, defaults initiate chain reactions – just as Facebook’s outage caused a chain reaction that saw many non-Facebook sites to go down, or business hosted on Facebook to experience problems – and these would reverberate globally and significantly.

For the average person or business, a default in the Gross Payment obligations of the FX Market will have far more serious consequences than the 2008 Financial Crisis – one of the largest financial crises in history.

The reason is the advent of 21st Century technology has enabled far more entities internationally to become involved in Global FX Trading. However, the entities primarily responsible for the Settlement of FX Trades are not 21st Century companies. Rather, they are 20th Century companies – with some of them functioning according to 19th Century methodologies or world-views.

This situation is, in its current format, insoluble given the structure of the incumbent settlement companies – and that they cannot stop their operations to rebuild their systems to conform to 21st Century requirements.

WM, on the other hand, built its first platform – Platform 1 – to fit with the changed and modernized landscape that 21st Century Technologies provided, and tested that platform robustly in worldwide operations for nine years.

Thereafter, WM completely rebuilt its platform to conform to modern best practice structures, process-flows and capacities as dictated by its nine years of operational testing, to produce its Complex Adaptive System-driven Platform 2 – which is specifically built to cater for 21st Century capacities and requirements.

An overview comparison of some of the capacity-differences between the legacy systems and the WM System are as follows:

Process Flows
The process-flow in such transactions involves three processes – Execution, Clearing and Settlement.

Legacy Systems: Legacy systems each have 70 to 100 Settlement Member entities that jointly work together to provide these services to 25,000 or more transacting entities worldwide. However, all of these entities – whether Settlement or Transacting – are in different countries, in different time zones, with different internal processes, with varying standards of security, reliability and speed – with hundreds of intermediaries involved in the process. This makes it (comparatively) a very high-cost process. It was necessary to work this way in the 20th Century because there was no other alternative. In the 21st Century – with the capacity for entities globally do conduct transactions worldwide in seconds – this system is so fragmented that it cannot function in any way than “best efforts”. It requires patches and contingencies continually having to be used to cater for the multitude of problems caused by such a huge number of required entities and their varying capacities trying to work together. It is just a matter of time before the “best efforts” and patches run out of the capacity to keep the system afloat.

WM’s System: Execution, Clearing and Settlement is all carried out simultaneously and instantly – in 1/100th of a second – to all, and any, member entities globally, according to uniform and global standards of speed, security, reporting and recording. There are no intermediaries or other entities involved at all, and the cost is either 0.25% to 1% if using WM’s ICLM Currency Swap facility or zero if using WM’s TUV Currency Swap Facility.

There are…

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