Correspondent Banking and Dollar Clearing

Dollar is still King

Despite what you have heard, the Dollar is still King. Most trade and investment transactions are conducted in Dollars all over the world. Also, per IMF data, approximately 58% of global foreign exchange reserves held by central banks and governments are denominated in U.S. dollars.

All Dollar Transactions globally must be cleared in the U.S.

The data: approximately 58% of global foreign exchange reserves held by central banks and governments are denominated in US dollars

Any dollar transactions outside of the United States must be cleared (settled) in the U.S. Foreign banks which do not have a significant banking presence in the U.S., must rely on correspondent banking relationships with U.S. banks who do the dollar clearing for them. These U.S. clearing banks must have a Master Account at the Federal Reserve. For many years, U.S. banks of various sizes were happy to do dollar clearing for foreign banks. But in recent years for a variety of reasons this has changed: smaller U.S. banks more often find it unprofitable to provide this service and even larger banks are becoming more selective in choosing correspondents. A major problem is that, given money laundering concerns, foreign banks in “high risk jurisdictions” are no longer welcome to do business with U.S. banks.

Foreign Banks without a presence in the U.S. must have a direct, or indirect, U.S. Correspondent

If a foreign bank does not have a U.S. correspondent to clear its dollar transactions, it can no longer engage in any dollar related activity worldwide.

Possible Solutions if a foreign bank does not have a U.S. correspondent

In context: every dollar transaction in the world must clear in the United States, which is why foreign banks need a US correspondent

Depending on the situation, the solutions could include:

Opening a rep office in the U.S.
Establishing an Agency or Branch in the U.S. (certain countries are eligible to do this but other countries are not)
Taking advantage of specialty chartering licenses at the federal and state government levels (especially valuable to fintechs and payment companies).
Other solutions including the use of regulated stable coins to make international payments.

Come speak with Atlantis

America is open for business. Atlantis has direct-hands on experience in solving your dollar clearing problem. Solutions to your problem is our business.