Geography Reference
In-Depth Information
of an extensive network of telecommunications networks, particularly a seamlessly
integrated worldwide skein of fiber optics lines, much of which forms the back-
bone of today's Internet. This infrastructure was decisive in enabling the birth of
EFTS, which comprise the nervous system of the international financial economy
and allow banks to move capital around a moment's notice, arbitrage interest rate
differentials, take advantage of favorable exchange rates, and avoid political
unrest.
One of the primary forms that EFTS take is Real Time Gross Settlement
(RTGS) systems (O'Mahony et al.
2001
), which handle money flows among
financial institutions and governments. The largest of these is the U.S. Federal
Reserve Bank's Fedwire system, which allows any depository institution with a
Federal Reserve account to transfer funds to the Federal Reserve account of any
other depository institution. In 2005, total Fedwire traffic amounted to $2.1 trillion
per day (Federal Reserve
2009
). The other major U.S. payments mechanism is the
privately-owned Clearing House Interbank Payments System (CHIPS) in New
York, operated by the New York Clearing House Association, a consortium run by
private firms that clears about $1 trillion in daily transactions, half of which is in
foreign exchange. In Europe, the Belgian-based Society for Worldwide Interbank
Financial Telecommunications (SWIFT), formed in 1973, plays a comparable role;
SWIFT extends into 208 countries and handles €2.6 billion daily in transactions. In
the United Kingdom, settlements are made through the Clearing House Associa-
tion Payments System (CHAPS) run by the Bank of England since 1984, while in
the European Union, a system linking the banks of member states known as Trans-
European Automated Real-time Gross settlement Express Transfer (TARGET),
which began in 1999, is used to settle transactions involving the euro. In Japan,
starting in 1988, the Bank of Japan Financial Network System (BOJNET) fills a
comparable function.
Private firms have similar systems. Citicorp, for example, has a Global Infor-
mation Network that allows it to trade $200 billion daily in foreign exchange
markets around the world. MasterCard has its Banknet, which links all its users to
a centralized database and payments clearing system. Reuters, with 200,000
interconnected terminals worldwide linked through systems such as Instinet and
Globex, alone accounts for 40 % of the world's financial trades each day. Other
systems include the London Stock Exchange Automated Quotation System
(SEAQ), the Swiss Options and Financial Futures Exchange (SOFFEX), and the
Computer Assisted Order Routing and Execution System at the Tokyo stock
exchange. Such networks provide the ability to move money around the globe at
stupendous rates (the average currency trade takes less than 25 s); supercomputers
used for that purpose operate at teraflop speeds, or one trillion computations per
second.
Similarly, in the securities markets, electronic funds transfer systems facilitated
the emergence of 24 h/day trading, linking stock markets through computerized
trading programs. Electronic trading frees stock analysts from the need for face-to-
face interaction to gain information. On-line trading also allows small investors to
trawl the Internet for information, including real-time prices, eroding the advantage
