The Bike Sharing Analogy (Peer To Peer Explained)
Like cities around the world from Boston to Barcelona, Bangkok and Brisbane, CurrencyFair’s hometown, Dublin, hosts a popular bike sharing scheme.
Many of you will already know how this system works; bicycles are made available to the public for short trips, for free or for next to nothing. It’s such a simple idea that’s popularised itself by being efficiently run, intelligently engineered, value for money and oftentimes a better choice than the competition (in this instance, walking or driving). They even have an interactive DublinBikes.ie map where you can check how many bikes are available at each station across the city!
However, have any of you wondered how the bikes move around when no-one’s cycling them?
It turns out that there is a truck, roaming this city and possibly your own, that removes excess bikes from full stations and deposits them wherever demand……eh, demands.
This means there is an equal distribution of bikes around the city so that cyclists have an easier time picking up or dropping off bikes.
In the money markets, we have a term for this sort of elastic rapid response. It’s called “liquidity.”
Here’s how CurrencyFair’s works . . .
Normally, our customers exchange currency with one another in order to avoid the costly bank fees involved when using traditional international bank transfers. Obviously, there’s a little more to it under the hood but that’s the gist of our peer-to-peer business model.
For example, If one person is sending dollars from Australia to Ireland and another is sending euro from Ireland to Australia, it makes sense for the euro and dollars to stay at home and simply be swapped by both customers for a fair price, rather than flinging them across the globe whilst having chunks taken out the various banks involved.
There are a lot of expats working here at CurrencyFair and many, if not most of us, have faced the hassle of traditional wire transfers. With more than US$483bn in annual cross-border remittances worldwide, we’re also pretty confident that we’re not the only ones who’ve been frustrated by the old, arbitrary and expensive way of doing things.
So that’s how things normally work, right?
Bikes and Liquidity
However, there are occasions when more money is being sent in one direction than the other. This means both trades don’t quite cover each other.
To maintain smooth efficiency in our Exchange, occasionally we step in, match the money (the fact that we call this “money matching” will astonish nobody) and help facilitate the exchange. We are essentially a financial equivalent of that nomadic truck, driving around town and topping up the bike stands where demand is greater than supply.
Liquidity in the Exchange is vital to its smooth functioning and we work hard to help lubricate a free-flowing exchange between our customers. This is just one of the behind-the-scenes tasks that we want you to take for granted (alongside our love of tortured analogies), in the same way that we weren’t aware bicycles sometimes need a lift just to get moving.