Cryptocurrency is the key to free convertibility

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Cryptocurrency is the key to free convertibility

Lado Okhotnikov, Wasay Ali, Daniel Webber conclude the topic at the bottom of the article

What are reserve currencies?

Everything is simple here. Reserve currencies are considered those that meet a number of requirements. They should be:

• freely convertible,
• stable
• and highly demanded.

That is, this is the money known and interesting to everyone and its volatility is either low or absent.

States need a reserve currency to accumulate reserves in case of a crisis. That is why earlier gold was used as state reserves. But after the introduction of the Jamaican currency system in January 1976 where exchange rates are set but by the market and not by the state and which completely eliminated the gold standard, the states began to accumulate reserves in the currency as well.

The following are considered reserve currencies in the modern world:

• Dollar (USA),
• Euro (European countries),
• Pound Sterling (Great Britain),
• Yen (Japan).

Basically, it is the dollar and the euro that are used as the reserve ones. But there is an opinion that in the near future the Chinese yuan may become the same reserve currency.

If you look at the situation from above it is obvious that the very reserve capability of the currency is controlled by the decision of a narrow group of state leaders who determine world politics. Of course it is difficult to challenge the leadership in the economy and the market share of such countries as the USA, Japan but it must be taken into account that this leadership is ensured largely by the fact that their currencies are recognized as reserve ones by themselves. They made a decision that is convenient for them. And they would not want to see other reserve currencies appear in this close range that are not under their control.

How settlements between countries work

Today all settlements between countries and business entities from different countries, except for special cases, take place precisely through reserve currencies. In most cases through the US dollar. That is the payer must first buy a dollar on the domestic market, deposit or transfer it to a currency account, and only then transfer it to its counterparty in another country.

When the partner receives payment, it will sell part of the amount on the domestic market in order to receive its local currency for settlements with contractors and suppliers within the country.

That is the dollar acts as a spacer. Moreover, with each conversion the customers pay a spread. Commissions are charged from each transfer: for the use of the payment system (Swift or VISA) or for cross-border payments. Their size is not high but the amounts in this case, as a rule, start from several million dollars. Therefore, the absolute amounts are impressive.

Cryptocurrency in international settlements

There are quite a lot of countries that have recognized cryptocurrency as a legal tender for private payments. There are fewer countries that have officially equated cryptocurrency to an international payment tender along with the dollar. Companies and other business entities are introducing, for example, bitcoin as a form of payment for services and goods. Basically, these are third world countries. But their experience is very useful because they are forced to experiment and these experiments are very successful. Their results are studied by many market leaders, which make a note.

In October 2015, the Court of Justice of the European Union (EU) ruled that “the exchange of traditional currencies for units of the virtual currency “bitcoin” is exempt from VAT”. And that “EU Member States should exempt, among other things, transactions involving “currency”, banknotes and coins used as a legal tender” which makes bitcoin a currency but not a commodity.

Development

It would seem that there are only a few steps left to make in order to give all national currencies the status of convertible ones. For this, you need:

• Create a national exchanger “local currency – bitcoin” (for example) in each country that wants to obtain convertibility status for its currency.
• Refine domestic tax legislation in such a way so that transactions with the national currency on this exchanger would become transparent to regulatory authorities.
• And of course, part of the settlements will be carried out by private individuals for getting cash exclusively. But it will remain forever. This is happening now and it is not a big problem.
• That is the scheme is:
• the national currency is exchanged for bitcoin,
• bitcoin goes to the recipient’s wallet in any country in the world,
• the recipient converts bitcoin into the national currency at the national exchanger and disposes of it according to his or her intention.
• all the details (company and wallet) are fixed in the contracts. Relationships are protected by both local and international laws.

That is everything happens in exactly the same way, as in the case of the dollar but now there is a bitcoin instead of a spacer.

This can be done right now. It is strange that this has not been done yet. There is probably opposition to this type of payment.

Who loses from it?

First of all the states of the international club of reserve currencies. Now they feel like masters of the situation. Their central banks receive commissions on international conversions and cross-border transfers. And they do not need competition.

Pros and cons

Pros are the properties of payments in cryptocurrency – low commission and instant transfers. There are practically no cons. Some may argue that bitcoin is a very volatile currency. And the amount sent to the counterparty can differ greatly from the amount received. This is not entirely true because no one forbids making a transfer from bitcoin to the national currency immediately before the transfer and immediately after receiving it. Thus, the very volatility of the exchange rate will not matter because the exchange rate will be important only in the moment.

The pro is that it will help bitcoin itself grow significantly as a payment means and move away from the status of a speculative security.

Your opinion?

Dear readers, do you think that the global financial system will move from the dollar to cryptocurrencies for international payments?

We believe that this process is inevitable but how long will it take? Will it meet with opposition from the “money masters”?

Professionals opinion

Lado Okhotnikov, CEO of Meta-force.space, former CEO of Forsage.io*

Cryptocurrency has long been successfully used as a means of international payments. The creation of national exchangers is something that even a small and not the richest country can do.

Yes, this is the idea that is in the air. And soon it will definitely be implemented despite the explicit and implicit opposition of some states and corporations.

This is a definite win-win technology. Countries get the convertibility of their currencies and cryptocurrency becomes stronger as a payment means.

Moreover, people around the world get the opportunity to accumulate their funds not only in dollars and euros but also in any currency since it will always be possible to transfer this currency to any other.

This is a very good idea. And that is where it is headed right now.

Lado Okhotnikov

*taken from here

Wasay Ali, Writer, Advertising and Marketing Agency, Mechanical Engineer*

Cryptocurrencies are inherently borderless, meaning they have no geographical restrictions like those for fiat currencies. Crypto allows you to transfer money directly to anyone and is convenient for peer-to-peer (P2P) transfers. Therefore, you can easily transfer crypto to anyone from a different country, whether a friend, family member, colleague, or otherwise.

Not only that, using crypto for cross-border payments can also benefit B2B and B2C transfers. Research from Pymnts.com suggests that around 58% of multinational firms use at least one cryptocurrency for payments. Juniper Research also indicates that the cross-border crypto payments for B2B transfers may surpass $4.4 trillion by the end of 2024.

It shows businesses integrate blockchain technology and cryptocurrencies for international payments and settlements. Therefore, you can opt for crypto payments in your business to mitigate the inefficiencies of traditional payment systems.

*taken from here

Daniel Webber, Founder and CEO of FXC Intelligence (and parent co FXC Group)*

While it is very challenging to determine the precise numbers doing so, we know that cryptocurrencies such as bitcoin are being used by people for remittances in parts of the world with particularly volatile currencies or those with significant cross-border restrictions.

On first glance on the volatility point, this seems surprising—even the most volatile currencies are less volatile than cryptocurrencies such as bitcoin and ether over a two-year period. However, when we look at the volatility over shorter periods of time, there are windows where cryptocurrencies are less volatile than certain fiat counterparts, such as the Sri Lankan rupee. As a result, crypto provides a relatively accessible alternative during these periods.

*taken from here