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Exchange Rates and Inter-Bank Payment Systems

[Sydney Harbor Bridge and Opera House, Sydney, Australia - Photologic]

- International Currency Exchange Rates

International currency exchange rates display how much one unit of a currency can be exchanged for another currency. Currency exchange rates can be floating, in which case they change continually based on a multitude of factors, or they can be pegged (or fixed) to another currency, in which case they still float, but they move in tandem with the currency to which they are pegged. 

Knowing the value of a home currency in relation to different foreign currencies helps investors to analyze assets priced in foreign dollars. For example, for a U.S. investor, knowing the dollar to euro exchange rate is valuable when selecting European investments. A declining U.S. dollar could increase the value of foreign investments just as an increasing U.S. dollar value could hurt the value of your foreign investments.


- Gold Ounce to Russian Ruble Exchange Rate

The Central Bank of Russia has officially announced that the Russian ruble will be tied to gold as of March 28, 2022, The rate is 5,000 rubles per gram of gold ingots. The Central Bank of Russia anchored the ruble to gold.

Russia said it would sell only OIL and GAS in Ruble. This means that Russian oil and gas are anchored in gold with rubles like gold proxy. Europe will now have to buy rubles from Putin using gold, or pay for oil and gas with gold itself.

There are 28 grams in each ounce. 28 grams for (5,000 rubles per gram) is 140,000 rubles. 



- The Real Effective Exchange Rate (REER)

The real effective exchange rate (REER) is the weighted average of a country's currency in relation to an index or basket of other major currencies. The weights are determined by comparing the relative trade balance of a country's currency against that of each country in the index. 

An increase in a nation's REER is an indication that its exports are becoming more expensive and its imports are becoming cheaper. It is losing its trade competitiveness.


[Valetta, Malta - iamchrisborg]

- The SWIFT System 

SWIFT (The Society of Worldwide Interbank Financial Telecommunication) is a Belgian-based consortium used by banks and other financial institutions as a vital line of communication for global commerce. The international payment system SWIFT is used by more than 11,000 financial institutions in more than 200 countries. 

SWIFT is a messaging system that runs on a network of financial institutions globally. It is used by thousands of banks worldwide to communicate information on financial transactions in a secure and standardized way. 

SWIFT is used to communicate money transfers between two banks. When two banks have a relationship (commercial accounts with each other), the transfer is done as soon as the SWIFT message has been received. The money from one's personal account is transferred to the other person's account via banks' commercial accounts. The banks take a fee. 

If the two banks do not have a relationship, the intermediary bank will facilitate the process. For that, you will be charged an additional fee.

If there are two currencies involved in the transfer, one of the banks will do the currency exchange.


- The Cross-Border Inter-bank Payments System (CIPS)

 The Cross-Border Interbank Payment System (CIPS) is a payment system that provides clearing and settlement services for participants in cross-border RMB payments and trade. It is an important financial market infrastructure in China. As planned, CIPS will be developed in two phases. On October 8, 2015, CIPS (Phase 1) went live. The first batch of direct participants includes 19 Chinese and foreign banks established in mainland China and 176 indirect participants, covering 47 countries and regions on 6 continents. 

On March 25, 2016, CIPS and SWIFT signed a memorandum of understanding in which both parties agreed to deploy SWIFT as a secure, efficient and reliable communication channel connecting CIPS and SWIFT members, which will provide a network that enables global financial institutions to Send and receive information about finance. Trade in a safe, standardized and reliable environment. CIPS is sometimes referred to as the China Interbank Payment System.


[More to come ...]



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