FX International Payments
By Megan Doyle
While the promise of improvement remains present, Bitcoin has yet to garner global acceptance. But as cryptocurrencies like Bitcoin become more widespread, businesses may need to start re-thinking the way they manage their cash flow to keep up with the ever-changing landscape.
This series explores the rapid growth of Bitcoin and other cryptocurrencies, including their potential as a new international payments solution.
The top 10 cryptocurrencies work in different ways – some limit the number of "coins" that can ever be created (e.g., Bitcoin), and some don't (e.g., Ethereum). But they're all woven with a common thread: they're decentralized, digital, and secure. Part 1 explores how cryptocurrency-based global payment solutions work, and their potential to challenge and disrupt traditional B2B payment methods with higher speed, greater security, and lower prices. Read article on cryptocurrencies' payment solutions potential.
About 1,500 cryptocurrencies have materialized since the introduction of Bitcoin. And in recent years, the market value of Bitcoin-like digital cryptocurrencies has skyrocketed. But it's not due to extensive use; in fact, only a handful of cryptocurrencies are being used in consumer and B2B payments. Experts suggest that currency trading is a key factor driving cryptocurrencies' exponential growth. Read more on how trading, not payment services, drive cryptocurrency growth.
Conducting business with developing countries can come with risks – uncertainty, complexity, currency volatility, and often slow or unreliable transactions. Some businesses, in countries such as Argentina and Venezuela, for example, have begun using Bitcoin to alleviate the hazards of an unpredictable market. But it's not as easy as it looks – the use of cryptocurrencies comes with its own risks to mitigate. Read more about bitcoin payment solutions in developing economies.
Bitcoin and other cryptocurrencies may promise a fast, secure, and lower-cost international payments system. But their use is far from ubiquitous: international acceptance is limited, making it hard for companies to make the full switch. Plus, a lack of hedging tools makes it hard to manage FX volatility risk. Part 4 looks deeper into the advantages and disadvantages. Read more on the pros and cons of bitcoin for international payments.
Bitcoin and other cryptocurrencies reached historic highs in 2017, drawing international attention beyond the B2B landscape, from consumers and governments as well. But not every country is thrilled with the new payment method. Some countries are issuing full or partial bans of virtual currency in response to concerns over lack of central bank backing, consumer protections, and the currencies' potential for use in illegal activities. Read more on cryptocurrency payment method bans.
Central banks have been dabbling in the same new technologies that are revolutionizing the global payments arena. Some think central banks could go one step further and make global payments faster, more efficient, and more secure by managing global payments entirely on their own. But a global payments network run entirely by central banks could expose them to a trade finance dilemma: credit risk. Read more on central bank cryptocurrencies as a global payments solution.
Megan Doyle is a business technology writer and researcher based in Wantagh, NY, whose work focuses primarily on financial services technology.