Did you hear the one about the rare Beanie Baby being sold for up to £20,000 on eBay? This is no joke – you may be shocked to find that some of these once so ubiquitous toys could be worth so much now and that people are buying them as serious financial investments.
Much like the stuffed animals in the 90s, Bitcoin is a hot commodity at the moment.
Prices – and hype – around it continues to climb. With the cryptocurrency recently reaching its highest rate ever of just over £5,809 per coin, many people are viewing it as a good investment. In fact, one man in the Netherlands is selling everything he owns, from his car to his kitchenware, and buying bitcoin in the hope of a cryptocurrency boom.
And businesses are jumping on the bandwagon too, last month IBM announced a project using blockchain, Bitcoin’s base technology, to make international payments in developing countries more efficient and less costly. With so much activity and buzz around it, could cryptocurrency really be the answer to more efficient cross border payments?
I believe that, for the moment, it can’t.
Not least because many of the real costs in global money transfers are embedded in the onboarding of customers and meeting regulatory and compliance requirements. Currently, cryptocurrencies such as bitcoin only address a very small percentage of the real cost; the actual transaction cost, but they don’t really provide cost savings over newer, completely digitalised money transfer schemes.
What’s more, so long as bitcoin and other cryptocurrencies are not the world’s reserve currency – something that is a very long way from happening – international money transfers need local sources of liquidity, which is another cost.
Simply stated: in its current configuration, Bitcoin does not address the real cost issues in cross border money transfers; those being compliance, regulation and liquidity.
Having said that, the underlying technologies – blockchain and distributed ledgers – do have the potential to revolutionise international payments. We’re already seeing smart applications using a blockchain as an alternative to traditional payment rails, in ‘hard to do’ and illiquid corridors (particularly with exchange controlled currencies), but it will take time before these technologies are used en masse for major routes – if at all – primarily because they are still too slow and illiquid.
There are also many other ways these technologies are being experimented with now, from trade finance, to smart contracts to derivatives – anything where there’s an asset being transferred that requires security and trust between the two parties.
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