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Money transfer has now gone crypto

Russian investors arrive at the Crypto Funding Summit, which helps investors understand cryptocurrency, in Los Angeles, California, last month. FILE PHOTO | NMG
Russian investors arrive at the Crypto Funding Summit, which helps investors understand cryptocurrency, in Los Angeles, California, last month. FILE PHOTO | NMG 

MoneyGram, one of the largest global money transfer organisations, has started using cryptocurrency to settle cross border payments.

Its partnership with Ripple enables them to use their xRapid blockchain product, as well as XRP, Ripple’s cryptocurrency, to settle payments. The relationship, heralds a new chapter on digital currencies.

Before I delve into the appropriateness of using cryptocurrency to settle cross border payments, let me shed some light into this emerging payment technology that has become to be liked and hated in equal measure in the short period they have been on the market.

The technology-based currency is liked by those who have genuinely benefited from its usage and hated by those who have lost money trying to invest in them.

Since the introduction of cryptocurrency, one of the greatest concerns has been the volatility or instability in terms of exchange rates. That concern has however been addressed by the introduction of the stablecoins – cryptos pegged to fiat money, a basket of assets, assets or exchange traded commodities to minimise volatility.

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For example, Central Bank can create a cryptocurrency pegged on the shilling to facilitate transactions. For all intent and purpose, Bonga points tokens are a good representative of a cryptocurrency that virtually everybody uses while understanding that its value is one third of the shilling.

It derives its value (utility) from the usage of airtime. The source of utility is important to understanding genuine cryptocurrencies. Some cryptocurrencies in the market have no utility and chances are that they are ponzi schemes.

The question many people ask is what has necessitated use of cryptocurrency to settle cross-border payments?

The quick answer is time, cost and convenience. Prior to Mobile payment platforms for example, it used to cost a customer to send money between two cities and the minimum time it took was four working days.

You had to travel to the nearest Post Office to pick the money. The customer paid not just the actual cost of sending but also the cost of inefficiency and time taken to receive the funds.

Just like Mobile payment platforms, MoneyGram and its competitor Western Union want to reach the customer instantly to settle payment generated in other countries.

Already there are partnerships with Banks and mobile payments platforms to achieve the same but the cost is increasingly becoming prohibitive.

The obvious solution is the use of blockchain, which can lower the cost significantly and improve on their value proposition. Since the cryptocurrency will be begged on the dollar (stablecoin), payment can be redeemed anywhere.

As simple as it looks here, we need a regulatory framework. At the moment, we don’t know how the eventual regulation will be but we need a stopgap (a legal sandbox similar to what the Capital Markets Authority has developed for its market) to study how the technology will grow.

It is pointless to dismiss a product whose time has come. Fear of failure isn’t an option for a developing country like ours. As Henry Ford once said, “Failure is only the opportunity to begin again, only this time more wisely.”

With the existing knowledge in the country, Central Bank can indeed monitor transactions on the platforms to certify that laws like Anti Money Laundering (AML) and other banking regulations are followed to the letter.

It is also important to start building capacity in the emerging fourth industrial revolution technologies such as big data analytics, blockchain and artificial intelligence for the future of our banking.

It will also enable the Kenya Revenue Authority (KRA) to collect some of the taxes instantaneously and eliminate some of the loopholes for tax evasion.

The rich data from these money transfer providers will enable KRA to understand Micro, Small and Medium Enterprises who form the bulk of money transfer recipients better to widen the tax base.

Cryptocurrency is here with us. We have another opportunity to leverage our experience with digital money and leapfrog into the future.

For this to happen, we must approach the emerging technologies with courage to enable a regulatory regime not just for Kenya but other countries as we have done in the past with mobile money.

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