Cryptocurrency and Foreign Trade

Tuesday, August 6, 2019

Nowadays, most of commercial transactions are made through SWIFT network (Society for Worldwide Interbank Financial Telecommunication). They allow financial institutions to communicate among each other in a secure and trustworthy matter, and no funds are transferred. A transfer that uses SWIFT technology may take several days to complete.

International transfers can be expensive for small and medium-size businesses, plus the delay times for accreditation turns them into an export problem. Which is why the advantages offered by cryptocurrencies are just so many to ignore. Marwan Forzley, founder and CEO of Veem, offers a platform for payments from business to business, claiming that they can solve three key problems that money transfer industry currently faces:

  • Follow-up: an end-to-end view of transfers you cannot receive from electronic transfers.
  • Transparency: exchange rates are public information. You never know what kind of rates you get on most currency exchanges made through banks.
  • Speed: real-time versus 2-5 days with banks.

The European Central Bank defined “cryptocurrency” (bitcoin as the most well-known) as “digital and unregulated money that is issued, usually controlled by its developers and is used and accepted among members of a specific virtual community”. The dictionary of the Royal Spanish Academy (RAE) has not yet established a definition for this word; however, the Oxford dictionary has and defines it as “a digital currency that uses encryption techniques to regulate the generation of currency units and to verify the transfer of funds, and that operates independently of a central bank”.

In order to speed-up foreign trade processes, Latin American banks have partnered with companies that offer bitcoin exchange services to provide international transfers. This avoids the use of SWIFT, which is usually used by banks for this type of transfer, and whose cost per transaction ranges between 120 and 150 dollars.

By using Bitcoin, the client does not have fixed costs, only transactions, since a proportional commission is charged for the transferred amount instead of being charged a preestablished amount. This payment method benefits those who transfer small amounts.

The process consists of registering each of the parties, the person paying transfers the amount to the platform that buys the bitcoins and then settle the payment at the destination in local currency, the whole process takes about an hour. This completely eliminates the financial uncertainty associated with foreign trade operations, which, on the other hand, are entirely recorded in a single digital entry that is easily accessible only to all interested parties. It also eliminates the need to use financial agents to make transfers, reducing these costs.

Operations have already been carried out with Paraguay, Uruguay and Chile under this process. Even an official export was made to Paraguay using bitcoins, which are listed as a payment method in customs documents. This technology, used for specific purposes and in combination with other technologies such as smart contracts, is an unprecedented disruption in foreign trade, where even incoterms must be exposed and discussed.