We have focused on Ripple’s XRP price for 2019. Next to this we looked at fundamentals, concluding that we see Ripple’s XRP on its path to be the largest crypto in 2019 or 2020. The current article takes a totally different viewpoint. The U.S. Federal Reserve is evaluating a new infrastructure for Interbank settlements. What if Ripple’s XRP (XRP) would become the Fed’s preferred technology for settlement in 2019?
First of all a big shout out to the XRP community for making us aware of this update. The first part of this article is based on the one appeared on XRP’s community blog.
Federal Reserve Faster Payments Task Force
Whe website of the Federal Reserve Faster Payments Task Force was meant to communicate progress on the Federal Reserve’s initiative to modernize its payment and settlement infrastructure. Ripple has a representative in its steering committe as explained a while ago.
The desired outcomes focused on speed, security, efficiency, cross border payments, and industry collaboration.
This task force published a call for submissions that took place from a large number of corporate and banking organizations.
The Faster Payments Task Force calls upon all stakeholders to seize this historic opportunity to realize the vision for a payment system in the United States that is faster, ubiquitous, broadly inclusive, highly secure, and efficient, with all service providers enabling ubiquitous receipt for end-user customers by 2020.
Ripple was one of those, and its submission received high marks specifically on its strength of cross-border settlement, arguably the most complex part of the settlement process.
2 months ago the U.S. Fed requested another submission, and below quote comes from this most recent submission:
“… the Board of Governors of the Federal Reserve System (Board) is seeking input on potential actions that the Federal Reserve could take to promote ubiquitous, safe, and efficient faster payments in the United States by facilitating real-time interbank settlement of faster payments.
While the Board is not committing to any specific actions, potential actions include the Federal Reserve Banks developing a service for 24x7x365 real-time interbank settlement of faster payments; and a liquidity management tool that would enable transfers between Federal Reserve accounts on a 24x7x365 basis to support services for real-time interbank settlement of faster payments, whether those services are provided by the private sector or the Federal Reserve Banks.
The Board is seeking input on whether these actions, separately or in combination, or alternative approaches, would help achieve ubiquitous, nationwide access to safe and efficient faster payments.”
Many companies submitted their proposal(s), for instance Amazon (submission here).
Ripple, the company, did so as well on December 13th 2018, and it is published in the public here. The format of the response was a basic question-and-answer type of submission. Here is a sample of Ripple’s answers on the Fed’s quesstions:
Question:”Will there be sufficient demand for faster payments to support the development of this service?”
Answer by Ripple: “Yes, we see sufficient and growing demand for faster payment solutions both in the domestic and cross-border setting.”
Question: “What adjustments would the industry and its customers need to make to operate in a 24X7X365 environment?”
Answer by Ripple: “The single biggest impact would be on the financial institutions that currently operate batch transaction processing of core ledger systems only on business days. A real-time 24X7X365 ‘stand-in’ capability or migration to a real-time core ledger would be options to consider.
The industry should continue to advance fraud detection and mitigation capabilities, that operate in real-time, to maintain the integrity and confidence in our payment systems while minimizing risks and losses.
SME and corporate accounting systems, that operate via batching of transactions today, would need to feed in single transactions and respond similarly to get significant benefits from such a service. Retail customers, already used to apps on mobile phones for a variety of online activities, would likely adapt the fastest to the new real-time and always available service.”
Question: “How critical is interoperability between RTGS services for faster payments to achieving ubiquity?”
Answer by Ripple: “Interoperability is critical to ubiquity, adoption and the ultimate success of new payment infrastructures. Enabling interoperability with the delivery of ‘atomic transactions,’ i.e., a debit to the sender’s account is accompanied by a credit to the beneficiary’s account, even via intermediaries, is essential. While interoperability across domestic RTGS systems is easier to imagine, customers will demand such Faster Payments to be offered even across borders. So ‘atomic transactions’ across RTGS systems in different countries will offer significant value, to both retail and corporate customers. Such interoperability is possible today, as already demonstrated in cross-border settlements using the open-source Interledger Protocol (see www.interledger.org).”
As per the valuable and insightful commentary on the XRP community blog, and we couldn’t agree more:
It’s apparent that the Federal Reserve is now moving inexorably towards a new replacement for batch processing, and it’s doing it in a careful way where the best technology can be selected. Its first foray into the topic of faster payments in 2017 resulted in a final decision to ‘let the market decide,’ almost indicating a preference to wait and see which existing payments system ended up gaining the most traction in private industry before considering one for use in its own infrastructure.
In this instance, I get the feeling that the Federal Reserve is desiring to ‘future proof’ its solution before selecting one, making sure that whatever is chosen for Federal Reserve interbank transfers can keep up with the demands of real-time settlement.
I can think of no better technology that’s proven its mettle than those innovations involved in RippleNet, which is in the process of methodically taking over where SWIFT left off.
Pay special attention to the last sentences, emphasis ours.
We couldn’t agree more especially on this part. Which other technology in the world is able to settle as fast and reliable as Ripple? Yes, there is improvement possible, as Ripple ‘only’ processes some 1500 transactions per second. But as we know from interviews with Ripple executives they are working hard to increase this, so we can assume this number will go up drastically in the coming months and years.
What if … Ripple and XRP become a key aspect in the new infrastructure?
So, what is Ripple and the XRP is part of the new infrastructure that the Steering Committee will choose?
This of course is a question that is hard to answer, as everything will depend how exactly Ripple will contribute and how exactly the XRP as a digital asset will function in this new (to be defined) setup.
Especially in the scenario that XRP will play an active role in the settlement it will be a boost in terms of liquidity for XRP. And as we know by now it is liquidity that largely will drive prices of cryptocurrencies in the future, as opposed to 2017 where the ICO hype was the driver (not function or liquidity).
We believe though that the primary result in such a scenario would be the credibility that Ripple and XRP will win. And we would tie this back to the institutional investing in XRP that we expect to see in 2019. As explained in great detail in our Medium article Why Bitcoin Futures Will Fuel Ripple’s XRP Price it is institutional money that we expect to push XRP’s price higher starting in 2019.
And here is the point. If you look at the +120 partners and clients that Ripple, the company, has acquired in recent years for its payment services on Ripplenet it will probably be volume that exceeds the Fed’s Interbank Settlement. We don’t have specific data on this, and we believe exact figures do not exact in this regard. We welcome any reader connecting with us to provide any data based evidence. But the liquidity push will primarily come from the large group of Ripple clients.
However, the credibility of being part of the Fed’s new payment system will create, according to us, an even bigger push of insitutional money into XRP.If #Ripple becomes part of the U.S. Fed's new payment infrastructure it will be a game changer for #XRP, though not in a way most think. Liquidity of XRP + credibility from institutional investors will send XRP's price sky high! Click To Tweet
In sum, we would be looking at liquidity and credibility driving XRP, in the strongest way possible. This combination of liquidity + credibility is unique to Ripple as a company and XRP as a digital assets in the blockchain space, but our point is that it may become even stronger with a participation to the new Federal Reserve payment infrastructure system in a way that not any other crypto would come close to the levels of Ripple and XRP.
In the meantime, the long term relative strength chart of XRP in the crypto space looks awesome, truly. We use the XRP to BTC price chart to this end. XRP to BTC remains in a long term uptrend, and we start seeing signs of a breakout of XRP as it may take our previous highs of the last 8 months.
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