Transferring money from one country to another remains quite an elaborate procedure.
A classic example of a cross-border payment may involve several banks and messaging systems before the money reach its destination. Each country also has its own business hours, currency, regulatory framework, and settlement mechanisms.
Blockchain represents a completely new technology for transferring value.
Perhaps the best example is that of stablecoins. It is a cryptocurrency pegged to the US dollar, whose primary function is to represent stable value in payment applications rather than appreciate in price. As stated by the BIS, stablecoins may offer some advantages for cross-border transactions as they can work continuously and transfer directly between blockchain wallets.
This may be especially useful in countries with limited access to foreign currencies and international financial infrastructure.
However, blockchain technology is not limited to stablecoins alone.
Financial institutions and central banks explore such concepts as tokenised money and unified-ledger systems. The BIS suggests that tokenised money from central banks, commercial banks and other financial assets could be included in the system that unifies payment instructions and settlement process.
What is aimed at is the mitigation of certain delays and risks that arise from today’s fragmented system of correspondent banking.
However, the technology makes transactions available beyond normal bank working hours. This does not necessarily mean that all blockchain transactions will become cheaper and faster, though. Fees charged by the network for the transaction, the conversion fee, legal aspects, liquidity issues and the procedure of exchanging digital assets for the local currency might become obstacles.
There are risks to be aware of as well.
While public blockchains generate privacy and financial crime issues, blockchain transactions done in error may be hard to cancel. Legal regulations also vary from country to country.
Therefore, blockchain cannot substitute for banks and international payment systems completely.
Currently, the application of the technology is viewed as an additional layer of the financial infrastructure.
It is a question of great interest not whether the blockchain will substitute for traditional payments.
It is whether combining the blockchain and regulated financial institutions can accelerate and increase the connectivity of international money transfers as well as reduce its reliance on the long chain of intermediaries.
