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The Great Expectations of Crypto for Cross-Border Payments

Alex Holmes LinkedIn Article

Currently, less than 1% of the volume of global cross-border remittances is in crypto, but in the future, cryptocurrencies are expected to account for a larger slice of the more than $700 billion USD in global annual remittances. However, despite aspirational visions by El Salvador's president and various pundits, that future promise has not yet arrived due to two major hurdles:

First, from a consumer perspective, crypto transfers are still not cheaper, faster, or better today than alternative options, particularly considering the complexities of converting crypto to/from fiat currencies.

With respect to the cost to send money, sending remittances from the U.S. to El Salvador, an essential service for many, is very inexpensive - especially in comparison to current crypto exchange fees. In fact, when using MoneyGram to send $400 USD from the U.S. to El Salvador, our current pricing is as low as $0 when sent online from a bank account directly to a bank account. Alternatively, buying and selling crypto is currently a complicated and more expensive process. While the future possibilities of cryptocurrencies are technologically exciting, we must not dismiss the economic risks and challenges the people in countries like El Salvador face. According to the AP, remittances in El Salvador account for 23% percent of the country's gross domestic product and benefit about 360,000 households.

Further, most individuals today are not looking to move crypto as much as they're looking to hold crypto, and there are issues with interoperability between crypto and traditional fiat currencies in local markets. The system is currently not cost-effective when crypto is treated as fiat currency, because in order to buy the majority of goods and services with crypto, it typically must be converted back into fiat. This is tough for individuals who rely on remittances for quick access to funds, as most of the remittances that MoneyGram facilitates are spent almost immediately on necessities like food, shelter, education, and clothing.

Second, there are many regulatory barriers to overcome before this vision becomes a reality.

Around the world, particularly in the U.S., there is still widespread uncertainty around tax implications, SEC regulation, banking regulations, and more. Mexico, the largest receive market from the U.S., is a great example of a country that has gone in the opposite direction of El Salvador. Financial authorities in Mexico recently stated that crypto assets are not legal tender in the country and are not considered currencies under current laws, warning that financial institutions that operate with them are subject to sanctions.

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