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How cryptocurrency improve cross-border payments

How cryptocurrency improve cross-border payments

31 May 2019 | AtoZ MarketsHow can cryptocurrency improve cross-border payments? Will the global financial regulators approve the crypto adoption in the financial services industry?

Blockchain adoption in cross-border payments

Cross-border payments refer to transactions involving companies, individuals, banks or settlement institutions operating in at least two different countries. Cross border payments may or may not incur a foreign currency conversion fee.

In addition to domestic charges, it will incur an assessment fee known as International Service Assesment (ISA) fee. In cross-border financing are also in present currency risk and political risk.

The blockchain technology, however, might help to eliminate certain risks and elevate the transaction speed. Blockchain might have the potential to provide a much faster and cheaper alternative to traditional cross-border payments methods. Bitcoin can be viewed as an uncensorable form of money that can be sent by anyone to anywhere in the world.

Blockchain enthusiasts have estimated, that the new technology may allow for costs as low as 2%, as well as guaranteed and real-time transaction processing speeds.

Main obstacles of the crypto adoption in the cross-border payments

Traditionally, financial institutions, including national regulators have been reluctant to change. Therefore, many countries have been extremely slow to adapt and regulate this new industry in a productive manner. Certain concerns about the illegal use of crypto, do not lose its relevance to the regulatory authorities.

Such crypto-related fraudulent activity might include money laundering, fraud, and terrorism financing.  In addition, crypto does not depend on any state or third party. For this reason, digital assets are used by countries like Iran, North Korea, or Venezuela to circumvent US sanctions.

Many countries are extremely cautious about new technology adoption.

Japan, for example, has one of the most strict rules for the crypto industry. All crypto exchanges in Japan must submit a license application to the Financial Services Agency. Tokyo also plans to tighten the crypto exchanges’ oversight on cold wallets to mitigate risks of any thefts and renew rules for crypto margin trading and set the standards as per the existing forex trading industry.

Eric Woerth, the head of the Finance Committee of France’s National Assembly proposed to ban anonymous crypto because the use of this type of cryptocurrencies poses major financial issues like fraud or energy consumption.

Ripple usage in the cross-border payments

XRP or Ripple is one of the cryptos that can be used as a solution for cross-border payments. Some argue that this is not a cryptocurrency at all. The current international financial system operates on the SWIFT network. Ripple hopes to replace with its protocol the Society for Worldwide Interbank Financial Telecommunications.

Ripple claims that its platform is faster and cheaper and has all the advantages of cryptocurrency. The question of the credibility of these statements is a matter of debate.

The company also claims that many banks began testing its technology, but despite the fact that they have existed for many years, we saw relatively few real use cases.

Future of the crypto in money transfer

An important factor for bitcoins, which was mentioned earlier, is that fees are extremely cheap compared to traditional methods. Bitcoin has no profit motive – money is used on a fair basis.

Nevertheless, Bitcoin’s critics, in particular, those who support Bitcoin Cash, argue that Bitcoin fees have already become too high because their scaling has failed.

They also claim that Bitcoin Cash as cryptocurrency improves cross-border payments due to a larger block scaling solution.

Bitcoin blockchain transactions are now easier to track thanks to technological advances. However, Bitcoin developers hope to improve Bitcoin privacy through updates such as Schnorr Signatures.

Whether this will facilitate money laundering in an ever-growing global economy is not yet known. However, cryptocurrency is a clear alternative to transfer money abroad.

Think we missed something? Let us know in the comments section below.

Disclaimer: The views and opinions expressed in this article are solely those of the author and do not reflect the official policy or position of AtoZ Markets.com, nor should they be attributed to AtoZMarkets.

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