In today’s interconnected world, businesses often need to collaborate with partners outside their jurisdiction to settle payments for goods or services essential to their operations.
The world runs on trade. Trades within national borders are great, but international trade is how countries build wealth. Governments, Business owners, institutions, corporations, and even individuals rely on foreign exchange (FX) to carry out key business activities, when it involves foreign partners. In today’s interconnected world, businesses often need to collaborate with partners outside their jurisdiction to settle payments for goods or services essential to their operations.
In regions where financial systems are well-developed and existing policies encourage cross-border cooperation, this process is relatively seamless. In Europe, for instance, businesses can service customers across borders without worrying about currency fluctuations, thanks to the euro, which is used across board. However, in Africa, the story is different. Deep political divisions, limited economic cooperation, and an underdeveloped financial architecture make foreign exchange payments challenging, even within the continent itself.
Challenges of traditional remittance methods
Processing Time: One of the most pressing issues is slow transaction times. Time is critical for business operations. Delays in fulfilling payment obligations can disrupt trade and hinder growth. In Africa, traditional FX settlement methods can take hours or even days, delaying the confirmation of payments and the release of goods or services. This inefficiency stifles commerce and economic activity, preventing Africa from reaching its full growth potential.
Complex procedures: Another challenge is the complexity of traditional FX remittance methods. For example, opening a domiciliary account in many African countries involves filling out numerous forms, obtaining introduction letters from existing account holders, and enduring lengthy approval processes that can take days or weeks.
These barriers make it difficult for businesses and individuals to access foreign exchange services for business needs, and removes flexibility even when they are available.
Costly Procedures: The cost of sending remittances within Africa is disproportionately high compared to sending funds to Europe or the Americas. These high costs, coupled with bureaucratic hurdles, create significant obstacles for businesses and individuals trying to leverage FX remittances effectively.
Lack of Transparency: Transparency is another issue with traditional FX systems. Unlike blockchain-based remittances which operate on public ledgers, traditional methods lack public-driven transparency. On the other end, public ledgers are auditable, immutable, and duplicated across millions of nodes, ensuring that transactions are transparent and verifiable by anyone. This level of accountability is revolutionary, addressing not only the challenges of slow transactions and complex procedures but also introducing a new standard of transparency.
Inflation and Volatility: Africa’s economic scene is sometimes plagued by inflation and currency volatility. Many local currencies lose value due to immature economic policies, eroding the savings of individuals and businesses. While saving in stable currencies like the US dollar is a viable solution, the complexity and cost of setting up domiciliary accounts exclude many from this opportunity. Blockchain-based remittances, particularly those using stablecoins, offer a low-barrier alternative, enabling anyone to set up an account and conduct transactions with ease.
Stablecoin-Based Remittances: A Game-Changer
Stablecoins are cryptocurrencies whose value is pegged to stable assets like the US dollar or gold. They offer several advantages over traditional FX remittance methods:
- Speed: Stablecoin transactions are processed on public blockchains, enabling near-instant cross-border transfers. Unlike traditional methods, which involve multiple intermediaries and lengthy approval processes, their transactions are fast and efficient. Imagine businesses sending payments to their partners in China and they confirm receipt almost immediately? The implication for trade is endless.
- Cost-Effectiveness: The cost of sending Stablecoins is significantly lower than traditional remittance methods. This affordability makes it an attractive option for businesses and individuals alike. Businesses can now reduce operational costs, and channel funds into other ventures, that stimulate further economic activities, bringing about better overall economic development.
- Efficiency: Stablecoins streamline the payment process. When Stablecoins is used for international remittance, businesses get to complete transactions quickly and confirm receipts almost immediately. This improves business processes, and helps businesses give better output. This efficiency boosts economic activity and enables businesses to operate more effectively.
- Inflation Hedge: Perhaps the second greatest importance of Stablecoins is its inflationary hedge. Stablecoins provide a reliable store of value in regions experiencing high levels of inflation. Once people convert their local currencies to Stablecoins, they get a dollar like protection against inflation, and preserve the value of their savings.
The Potential for Growth
The benefits of Stablecoin-based remittances are undeniable. Companies like
Ledig Technologies offer liquidity that help businesses improve cash flow, reduce operational costs, and enhance transparency, helping businesses excel in the 21st century business scene. Major organizations like Stripe and PayPal have recognized the potential of this technology, and have taken positions in Stablecoin companies.
For Africa, the adoption of Stablecoin-based FX settlements could unlock significant economic growth. Since Stablecoin based remittance reduces transaction costs, speeding up settlements, and providing a hedge against inflation, it empowers businesses and individuals to participate more actively in the global economy. The result is a more dynamic, transparent, and efficient financial ecosystem that supports Africa’s development.
Akeju Abiola F.