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by PaulDavisThe1st
2259 days ago
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The secret sauce is that TW doesn't actually do currency exchange. They have their own pools of different currencies, and receive/disburse into/from those pools rather than selling/buying. So if you send $100 to someone who will receive EU, TW doesn't actually change $100 into EU; they credit your $100 to their dollar pool, and pay the recipient from their EU pool. As long as the pool sizes remain well matched with the inflow/outflow in that currency, TW isn't actually having to deal with any currency conversion at all. This is simultaneously similar to and utterly different from what banks have done for international transfers. The difference is that TW is free to take on the risk of the rates changing because the risk is reduced substantively. |
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They only support disbursements in six currencies (AUD, EUR, GBP, NZD, PLN, and USD), but they can accept eighteen currencies; presumably because they already have a large balance of those and they are relatively stable -- the one question mark for me would be PLN, but I would guess that it might be an important remote work market.
It seems the main difference is the lack of a requirement for an intermediate bank or banks; even a large international bank like HSBC might have to go through a third party for currency conversion in certain circumstances. It seems a lot easier if you are only making increases / decreases to your own balance sheet (cut out the middle man, no settlement requirements, etc).
Presumably you issue bonds to get the to do this with, which is relatively safe because it stays as cash and you know your churn rate. Does TransferWise have any levers they can pull besides halting disbursements in a given currency if there is a sudden devaluation, e.g. Poland goes bankrupt and PLN goes to zero?