The Arab Monetary Fund (AMF) has appointed J.P. Morgan as a settlement bank for the US dollar (USD) in its Buna Payment System, which was launched last year.
Besides offering its participants access to the global currency, the regional payments and settlements system will onboard the euro, Jordanian dinar and an international currency likely from an Asian country in 2021, Mehdi Manaa, the CEO of Buna, told Zawya in an interview.
Before the deal with JP Morgan, Buna had been offering its services with the UAE dirham, Egyptian pound and Saudi riyal.
"From the value of proposition, the US dollar represents 55 percent of cross-border payments in the region. So it is obviously a key currency for banks to consider for cross-border payments in a centralised way in BUNA," Manaa said.
"Processing dollar payments between participants will be immediate and direct between the two of them, without the need to go outside the region and being constrained by [the] different time zones and different operating borders and intermediaries of each bank," he added.
Buna has been expanding its network with banks and corporates aligning with its borader vision to promote trade and foster economic activities among Arab countries and its main trading partners.
BUNA has currently close to 30 banks onboarded and is in discussion with more than 130 banks from 13 different countries, Manaa said.
"Today, cross border payment is very costly, takes a lot of time and [is] inefficient to some extent. With Buna we resolve all that. It is real-time and reduces the chain that is involved in processing a payment end-to-end," he said.
Several cross-border payments and settlements in the Middle East are carried out by correspondent banks, which are banks in one country acting as agents to foreign financial institutions that do not have a local presence. However, this has turned out to be an expensive process, mainly due to the anti-money-laundering rules of European and US banks.
"Compliance is a key proposition in the value proposition of Buna. Normally payment systems are not subject to AML safety rules. This applies to banks and not the market infrastructure. Despite that, in Buna, the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) rules are embedded in the system, ensuring that all participants adhere to the AML rules stipulated by the central governments," Manaa said.
He added that the cost of transacting through the platform will be between 3 to 10 times lower than existing traditional approaches.
(Reporting by Seban Scaria; editing by Daniel Luiz)
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