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Friday, September 27, 2019

How international money transfer has evolved


There are over 55 million expatriates around the world. The basic human desire for a better life leads many people to relocate to other countries. And the need of these expatriates to share their wealth with loved ones gives rise to the international money transfer.

If you send money to India today, you know that international money transfers are quick. Technology has negated the challenges of physical distance. However, the history of money transfer began in a humble way.


History of money transfer

Barter system

The Mesopotamians are believed to be the pioneers of this system, which was later adopted by the Phoenicians. People would exchange goods and services for other goods and services. They used this system to gather food, weapons, and spices. Begun in around 6000 BC, the barter system continued even after the invention of money.

Metal coins and paper currency

The first coins were made of a natural gold and silver alloy. They are believed to have been introduced by the ancient Greek King Allyattes of Lydia (in present-day Turkey) around 650 BC. The first paper currency is believed to have been introduced under the Tang Dynasty in China around the 7th century BC.

Currency traders and money changers

Ancient Talmudic writings speak of people engaging in currency trading and exchange. They charged a fee for changing currency.

Hawala system

The Hawala of Hundi system started around the 8th century in Asia. Arab traders began to transfer money without physical movement of any financial instrument. The sender would give the money to the intermediary who had a vast network of agents across locations. This intermediary would inform the agent closest to the receiver to transfer the funds. 

International banking 

Medieval and Renaissance Italy is often credited for developing the banking system. In 1397, Giovanni Medici of Italy established the Medici bank. He opened banks in foreign locations to cater to the needs of textile merchants. Banking gradually spread across the Holy Roman Empire and to Northern Europe in the 15th and 16th centuries.

Forex market in Amsterdam 

An active forex market started in Amsterdam in the 18th century. In 1704, foreign exchange took place between agents from England and the Netherlands.

Birth of US dollar 

In British-ruled America, local currency minting was prohibited. So, the Spanish ‘dollar’ became the secret pillar of the American Revolution. In April 1792, the US Congress created the dollar as the country’s standard unit of money.

Western Union

The New York & Mississippi Valley Printing Telegraph Company was founded in Rochester, New York in 1851. Following a merger in 1856, it became the Western Union Telegraph Company. In 1871, the company started money transfers across its vast telegraph network.


International wire transfers 

With globalisation and an increase in the number of expatriates, wire transfers became popular in the late 19th century. People could now securely transfer funds via banks and non-banking agencies.

International payment network

In 1973, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) was founded in Brussels, Belgium. It was supported by 239 banks in 15 countries.

Financial institutions worldwide send and receive information for financial transactions through SWIFT. Today, SWIFT handles transactions worth approximately $5 trillion per day.

PayPal 

In 1998, PayPal emerged as a leading player in the online money transfer segment. It mainly catered to online vendors and businesses. PayPal’s annual payment volume amounted to $578 billion in 2018.
Online money transfer services

Swift, seamless, and convenient transactions are the priority today. Online money transfer services like Axis Remit Money, started by Axis Bank in 2008, are making international money transfer simple and quick. Such services offer an easy way to send money to India instantly.

Cryptocurrency

The future could see increasing use of cryptocurrencies like the Bitcoin. These digital currencies are exchanged with ease over peer-to-peer networks. Best of all, there is no need for an intermediary.

Summing up

How the world transfers money has indeed come a long way from the metal coins of the ancient world to the cryptocurrencies of today. Technology and human progress have played important roles in this development. But international money transfer is still evolving—and there may be more to come.



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