What is Global Banking?
Perhaps it was your commute to and from work today. That lunch you ate at the food court at noon. Or the spring break ski vacation to British Columbia that you just booked last night. What do these things have in common? Most likely, they all involved global banking.
As you have undoubtedly heard by now, we live in an era of globalization. This globalization touches most everyone, including our economy and daily lives right here at home. Much of what enables this globalization to happen on a daily basis is international or “global” banking.
Let’s take for instance that commute to work. Whether you drove your own vehicle, rode the bus or used UBER, Lift or a traditional taxi, there was a petroleum-powered vehicle involved. Even if you biked or walked to work, your rubber tires or the electronics in the stop/walk signal probably came from a foreign manufacturer. In all of these cases, there were goods (i.e. petroleum, rubber, electronics) that needed to be imported into the United States from a different country. As is often the case with imported commodities like petroleum and rubber, or high-tech electronics, they are typically sold using a payment instrument called a Letter of Credit. A Letter of Credit, often referred to as an L/C, is a bank letter guaranteeing that the buyer will pay the seller a specific amount of money on a specific date. Should the buyer not make payment, the bank will be required to pay the amount owed to the seller. Global banking departments issue, confirm, negotiate, and/or advise Letters of Credit on a daily basis, allowing for goods and services to be securely traded all over the world, every day.
Now think about that lunch today at the food court. Suppose you had a delicious BLT. Most likely, the lettuce and tomato made their way from industrial farms in Mexico. The produce had to be bought by a wholesaler or distributor here in the United States, paying the Mexican supplier in their local currency, the Mexican Peso. Global banking makes this transaction possible by converting the buyer’s U. S. Dollars into Mexican Pesos, then sending those Pesos to the seller’s bank in Mexico by means of an electronic wire transfer.
Finally, let’s go skiing! But wait…British Columbia is in Canada and Canada uses the Canadian Dollar, not the U.S. Dollar. No problem. Global banking can convert a desired amount of your U.S. Dollars to Canadian Dollars on the foreign exchange currency market so that you have the correct cash in hand during your travel abroad.
In a nutshell, global banking makes it possible for the world economy to function, by being the instrument for transferring money across national borders.