[bt3]

Adding a currency that everyone can agree upon as the "intermediary" prevents you from needing to hold huge sums of random currencies. For example - you're a bank in the UK so your fiat currency is GBP. If you want to manage transactions within just Europe, you would need to have Euros, Croatian Kunas, Danish Krones, Swiss francs, Polish zloty's, Russian rubles, Turkish liras, etc. Therefore you as a bank are subject to the ongoing valuations of these currencies, not to mention you've got hundred of thousands of (insert currency here) tied up in these accounts. As a bank, you have to correct for this inefficiency so you produce conversation rates that are not consumer friendly, but necessary to recoup the money you've lost setting aside all those accounts.

With XRP, you replace all those currencies with some amount of XRP. Because all member-banks use XRP when you need to transaction, say GBP to EUR (simple example), you would take your GBP, convert it to XRP, then use that XRP to buy EUR from another bank, that bank then can hold the XRP or chose to immediately convert it back to EUR through other banks. Like I mentioned previously, that whole transaction takes a few seconds, so you're effectively not subject to market volatility that could impact the transaction itself.

[HexagonalKitten]

> you would take your GBP, convert it to XRP, then use that XRP to buy EUR from another bank

But I could more easily just use my GBP to directly buy Euros, with one less exchange rate and one less transaction in the process.

> that whole transaction takes a few seconds

For a bank, that's slow. But even if it wasn't, using an intermediate currency simply takes twice as long for each step.

[bt3]

> But I could more easily just use my GBP to directly buy Euros, with one less exchange rate and one less transaction in the process.

In this scenario, the transacting bank would need to have (or want) to have GBP for them to sell Euros. While I agree this is a poor example, think of the more obscure conversions. Swedish kronas to South African rands, etc.

Anyway, I won't pretend XRP is a perfect solution. Just seems to me that it solves the edge cases of liquidity while doing so more cost effectively, which in turn benefits the consumer.

[DennisP]

Why wouldn't the bank just use dollars or Euros as the intermediate currency? Have a pile of dollars, a trading pair for everything against the dollar, and you're all set.