Need faster X-Border payments even crypto?

When cryptocurrency boosters talk about the ways it can turn traditional finance into obsolete financing, cross-border payments are inevitably the first thing they mention.

There are reasons. SWIFT has left sending money from one country to another expensive, slow to the extreme and unavailable 24/7. It’s a bit ridiculous in a day and age where you can buy everything from a duvet to a car from your smartphone at 4:30 on a Sunday. And it will only get worse as real-time payment tools like FedNow and The Clearing House’s RTP network come online.

Cross-border payments have also not been a bugaboo for crypto enthusiasts. Especially when it comes to money transfers, there has been plenty of mainstream interest and champion, from MoneyGram to the UN, who made the reduction in money transfers a sustainable development goal four years ago.

So why have cross-border cryptocurrencies not happened on a large scale yet?

Easy in theory

Sending cryptocurrencies like bitcoin or stablecoins like USD Coin or Tether’s USDT from one wallet to another is anywhere from fast to instant, with fees that can range from a few dollars (on bitcoins clogged and expensive networks) to pennies or even fractions of one cent. for tokens like Algorands algo, Stellars lumen, Ripples XRP or even bitcoin over the Lightning Network.

And they do not see boundaries. San Diego to San Francisco is no different than San Diego to Sweden.

Ripple, which caters to banks that do back-end transactions, has the basic technique down. Users can purchase XRP tokens in the amount to be sent, transfer them from one wallet to another, and immediately sell XRP for the local currency. The process is so fast that even crypto’s wild price volatility does not have a noticeable impact.

Stablecoins make the process even easier, but they are beyond the control of central banks, who fear that they will let people avoid fiat currencies altogether – which is a problem both domestically and across borders. That’s why EU legislation on cryptocurrency markets (MiCA) will limit stablecoin transactions to $ 200 million per day. And there are very serious stability concerns, especially since the Terra / LUNA stablecoin ecosystem collapsed in May, taking $ 48 billion.

The fences to climb

So what’s the problem?

First, there is the actual complexity of do-it-yourself crypto transactions. Handling digital wallets, trading exchanges and the like throws up a barrier that requires instruction and a certain degree of technical knowledge to master.

A bigger problem is the regulation and the lack of it. Sending your crypto wallet to your wallet is easy. Ramping it into the fiat is not. Payment intermediaries and money services companies (MSBs) are required, as heavily regulated banks are still cautious about getting involved before an actual legal framework is in place.

Compliance with money laundering (AML) is also a growing area of ​​interest for regulators, and companies wishing to use cross-border retail crypto need clarity and security.

Increasing competition

Fear of stable currencies is a major factor in the explosion of interest in central banks’ digital currencies (CBDCs) in recent years. Around 100 countries, including all major economies, evaluate, test or build CBDCs. In the United States, President Joe Biden’s executive order, which requires a comprehensive crypto-regulatory framework, requires a CBDC recommendation, and the European Central Bank (ECB) has been pushing aggressively for one.

In June, the Bank for International Settlements (BIS) – a major advocate for cross-border payments – issued a report saying: “Our broad conclusion is rooted in the motto, ‘Anything crypto can do, CBDCs can do better.'”

Read more: BIS says that CBDC can do everything that crypto can, but better

There has been increasing attention, and many regional tests, on how to make the CBDC work across national borders, which will solve the speed and cost problems as well or probably better than cryptocurrencies – if it can be made to work technologically and political.

However, SWIFT does not sit still. In April, it teamed up with The Clearing House and EBA Clearing to launch a pilot program for real-time, cross-border payments.

See more: Pilot for cross-border real-time payments launched by EBA, SWIFT, TCH

“Apart from providing a simple and transparent service to end users, our main goal is to make things easy for financial institutions,” said EBA Head of Service Development and Management Erwin Kulk at the time. “The fact that there is no need to connect to a separate payment system should make the service very attractive.”

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