A digital currency worthy of its name in money transfers
The dawning of digital currencies led by the star Bitcoin shone with such disruptive force that led many to believe that they got what it takes to impact the financial landscape with their various potentials towards a paradigm shift. Fast and furious and quick to the draw, ruling with reckless abandon for all to see without any controlling authority, these crypto’ed tokens brought many to heights unimaginable when everything was thought rested in the mighty fiat as a default medium of exchange since generations past and into the next. But though these decentralized digital currencies kept many promises along with its underlying blockchain technology, they have somewhat plateaued to investment instruments best kept for higher ROIs in the long run rather than the envisioned replacement to the controlled fiat currency. While many crept back to the old ways of traditional cashflow without a second look, a new leaf was in the offing.
Enter the Dragon: Stablecoins
Believers cannot just dismiss the potentials cryptos have in redefining the financial ecosystem via digital technology that their bullheadedness in continuously innovating and solving the inherent high volatility of cryptocurrencies was met with a just reward by the creation of the StableCoin (SC). The Stablecoin anchored itself to a fiat reserve to solve the wild swings that have constantly bugged its market presence. Then to totally align itself with Nakamoto’s vision of decentralization, the StableCoin made a smart move of making itself the bridge linking the usable characters of both the fiat and the cryptocurrency in order to serve the purpose much needed in today’s many a different financial system.
User Case: Remittances
The migration phenomenon gave rise to a multibillion-dollar money transfer industry called remittances which hit a record-high $689 billion in 2018 alone. It has overtaken foreign direct investment and official development assistance being received by low and middle-income countries. World Bank statistics reveal that remittances in 30 countries equal to more than 10 percent of each own gross domestic product. If remittances represent the most tangible link between migration and development, it is wanting of revisit since data captured by the World Bank and the International Monetary Fund are limited only on formal remittance channels such as banks and money transfer operators, making official data only underestimates of actual figures as many other informal channels are utilized.
World bank data of 2020 recorded the top five remittance recipient countries which are: India (US $83.1 billion), China (68.4 billion), Mexico (38.5 billion), the Philippines (35.2 billion), and the Arab Republic of Egypt (26.8 billion). Meanwhile, the top 5 countries which receiving the highest remittances as a share of gross 2019 GDP were: Tonga at 37.6%, Haiti at 37.1%, South Sudan at 34.1%, the Kyrgyz Republic at 29.2%, and Tajikistan at 28.2%.
Remittance consists of, in most cases, a migrant worker sending money to his family in his home country. Currently, the average charge regardless of the amount of money being sent is 7%. Money transfers use multiple intermediaries such as financial institutions and money service providers to facilitate the transfer, resulting to expensive manual processing fees and inconvenient delays that take days or weeks. Operational costs against a backdrop of $689 billion have amounted to $49 billion. These problems can be confounded by fraud and embezzlement.
That is why, more than ever, StableCoins and its blockchain technology has become a necessary solution to the chronic pains remittances have been to since the 1970s. It offers fast transactions across borders without intermediaries, and that would sure cut down high processing fees drastically. The consequent savings can really help a lot in raising the standard of living of recipients. Transparent audits and verifications make transactions highly secured, and the hard-earned money is twice safe due to the price stability of StableCoins against market volatility upon which bitcoins and other cryptocurrencies are exposed to.
The use of blockchain technology allows users to own crypto wallets to store, receive, and send digital currencies anywhere in the world with instant conversion and exchange between fiat and cryptocurrencies, of which, Wallex is a prime example where you can open an account for multiple currencies.
While others are exploring on digital platforms, the Wallex operates on a protocol that integrates its financial technology structure to interact with traditional financial institutions so that services can gain maximum speed in transaction procedures. It’s EURST StableCoin can further facilitate financial exchanges and trading between currencies on a 24/7 basis at a low cost.
Furthermore, the use of ATMs as means of sending and receiving money anytime anywhere in the world can provide a worthwhile solution to remittance problems as experienced in underdeveloped countries with a weak banking system coupled with little or no internet connection. The use of StableCoins and distributed ledger technology (DLT) will not even need a bank account to use it, though ATM operators are to charge fees at a minimum.
The legality of StableCoins is closely being studied across countries as they vary from border to border. They may for the moment stall its progress, but results point to a bright future. Even the G7 formed a study group and submitted a report dated October 2019 stating that “no global stablecoin project should begin operation until the legal, regulatory and oversight challenges and risks outlined above are adequately addressed, through appropriate designs and by adhering to regulation that is clear and proportionate to the risks. That said, depending on the unique design and details of each stablecoin arrangement, approval may be contingent on additional regulatory requirements and adherence to core public policy goals.”
G7 has outlined considerations for all economies to follow to optimize the functionality of StableCoins:
1. Legal Certainty
A well-founded, clear and transparent legal basis in all relevant jurisdictions as a prerequisite for any stablecoin arrangement
2. Sound Governance
Efficient governance promoting the safety and efficiency of payment services and the like; includes a clearly-defined governance structure of the arrangement clearly defined and conveyed to all ecosystem participants
3. Financial Integrity
StableCoins should be effectively regulated and supervised to curtail opportunities for money laundering, terrorist financing, and other illicit activities
4. Safety, Efficiency, and Integrity of Payment Systems
Vital to the financial system and the wider economy is the smooth functioning of payment systems such as accessible and cost-effective means of payments, system facilitation of commercial activities to foster economic growth, benefitting society as a whole
5. Cyber and other Operational Risk Considerations
The use of appropriate systems, policies, procedures, and controls to mitigate cyber risks
6. Market Integrity
StableCoin arrangement ensuring fair and transparent pricing in both primary and secondary markets
7. Data Protection
Authorities applying appropriate data privacy and protection rules to stablecoin operators, including the use and sharing of data between participants and third parties
8. Consumer/Investor Protection – Additional work efforts required to ensure consumers and investors are informed of all material risks as well as their individual obligations.
Overall, this is good news as the highly authoritative bodies are coming together to facilitate regulation and eventual use of StableCoins in the expanding remittance industry. Though it may experience a temporary decline due to the global pandemic causing limited movement of peoples, studies and formulations will have been finished by the time and ripe for migrant workers to adopt.