PDF《NOTE》

s abil- ity to send money throughout the world. Part II argues that Ripple provides a better way to make cross-border payments because it makes international payments cheaper, more efficient, and more secure. Part II also explains Rip- ple'

s unusual governance structure and analyzes how regulators currently require financial institutions to manage Ripple (rather than regulating Rip- ple itself). Part III provides substantive suggestions for regulating Ripple and other decentralized Internet-payment protocols (DIPPs). It analyzes domes- tic and international guidelines and regulations and modifies them to ac- count for the particular risks posed and mitigated by Ripple. I. Noncash Payments: Moving Money Through Settlement This Part describes the basic characteristics of traditional centralized payment systems to explain how Ripple works. To do this, it analyzes how money moves through financial institutions. It then describes how mod- ern domestic-payment systems rely on central institutions to facilitate this movement of money between institutions. Because no central institution provides global settlement functions,11 the current international system is inefficient and introduces considerable risks to the global financial system. A. Moving Money in the United States At the most basic level, payment systems move money from a payer to a payee.12 While one might think of money as physical banknotes, most pay- ment systems today move money in the form of deposit balances held in banks.13 A bank customer creates a deposit balance when she deposits cash into her account.14 This deposit balance is a financial asset and a form of money because it reflects a depositor'

s claim on the bank that the depositor can redeem from that bank.15 A noncash payment from a payer to a payee uses these deposits to move money from the payer'

s bank account to the payee'

s bank account by decreasing the payer'

s deposit balance account and increasing the payee'

s deposit balance account.16 This process is a settle- ment because it settles a payment obligation by moving a financial asset, a deposit balance, between a payer and a payee.17 11. See infra note

47 and accompanying text. 12. Comm. on Payment &

Settlement Sys., Bank for Int'

l Settlements, A Glos- sary of Terms Used in Payments and Settlement Systems

38 (rev. ed. 2003) [hereinafter Glossary], http://www.bis.org/cpmi/glossary_030301.pdf [http://perma.cc/KB7G-7VCP] (de- fining payment systems ). 13. Comm. on Payment &

Settlement Sys., Bank for Int'

l Settlements, The Role of Central Bank Money in Payment Systems 1C2 (2003) [hereinafter Central Bank Money], http://www.bis.org/cpmi/publ/d55.pdf [http://perma.cc/B6E9-624T]. 14. Cf. id. at

2 (describing how deposits at settlement institutions are accepted as money). 15. Id. 16. See id. 17. Id. at 9C10. February 2016] The Ripple Case Study

653 Settlement occurs when banks update their ledgers to adjust deposit bal- ances.18 Because settling an obligation between a payer and a payee necessa- rily creates a new obligation between the payer'

s bank and the payee'

s bank, the banks must also settle the transaction between them. To accomplish this interbranch settlement, the payer'

s bank must send a corresponding amount of funds to the payee'

s bank.19 For every credit there must be a correspond- ing debit: both banks have to update their ledgers to account for the transfer of funds.20 A payment system provides the protocol that defines how banks settle these obligations.21 More specifically, a payment system is a set of instru- ments, procedures, and rules that govern the transfer of funds from one bank to another to settle........