Understanding Interbank Clearing and Foreign Exchange
Interbank Clearing Systems
The interbank clearing system facilitates transactions between banks. Current systems often allow for the detention of effects without requiring the submission of paper documents, thanks to computer processes. This is known as truncation or elimination of paper documents or magnetic computer keys.
The National Electronic Clearing System (NECS) streamlines the compensation of documents and payments, including transfers, money orders, debits, and standing orders. This system operates through a single-chamber compensation system and the Spanish Service for Interbank Payments for both domestic and cross-border transactions.
Foreign Exchange Market and Banking Services
Foreign Exchange and Banknotes
In the context of currencies, the term ‘foreign exchange’ encompasses all commercial paper issued in foreign currency, such as checks, bills, and notes, as well as transfers or foreign income expressed in foreign currency. Foreign currency notes represent a paper currency.
Foreign currency is exchanged between countries at a specific rate determined by supply and demand in a liberalized market. Central banks often intervene to protect their currencies, a practice known as ‘dirty floating’. Monetary policy is guided by supranational bodies like the European Central Bank.
A crucial process involved establishing fixed and irrevocable exchange rates between national currencies and the euro. These rates were fixed on the last working day of 1998, and national currencies of Eurozone countries were phased out in March 2002.
Exchange rates for banknotes are typically less favorable than for currencies when customers sell to credit institutions. Conversely, the price of a banknote is higher than the currency rate when purchased by a customer.
Collections and Payments Abroad
Receipts and payments abroad are largely liberalized in open economies. However, certain charges and payments may require a declaration. The general requirements include:
- Intervention by a registered entity to channel payments, receipts, and external transfers.
- A declaration from the resident making the collection, payment, or transfer abroad, regardless of the currency.
- Registered entities must report these transactions and others to the Bank of Spain.
Furthermore, there is an obligation to declare the import or export of banknotes and bearer checks exceeding 10,000 euros per person per trip. This declaration can be made at a customs office or a registered entity.
Means of Payment
Enhanced security features in payment methods often come at the cost of flexibility, and vice versa. Documents are essential in international transactions, differentiating between business documents, financial documents, transport documents, and insurance documents.
Financial documents, such as bills of exchange, promissory notes, and checks, directly relate to the formalization of payment and guarantee repayment.