We’ve heard a lot about how blockchain technology can help industries operate more efficiently, enabling organizations to save money that can be allocated elsewhere. While the global economy isn’t technically in a recession, rising costs and inflation, geopolitical challenges, higher interest rates, and threats of sovereign debt crises undermine positives like an ascending stock market or low unemployment.
As everyday people struggle to pay bills and small and medium-sized enterprises (SMEs) face scaling obstacles, countering economic strains caused by inefficient cross-border payments can help remedy a troubled economy. Creating this reality isn’t simple—but blockchain technology could effectively remedy cross-border payments—if done correctly.
Blockchain’s economic case
In 2022, global cross-border payments reached $156 trillion, with 97 percent coming from the business-to-business variety. Considering this massive sum is only expected to rise in today’s highly interconnected economic order, making cross-border payments and transactions work better would have huge economic reverberations. Money traversing national borders is a major driver of economic development as it fuels trade, investment, productivity, and innovation.
As SMEs become more reliant on international payment networks, the commonality of failed or late payments has convinced many to rely on domestic suppliers regardless of the cost. For these businesses especially, payment inefficiencies limit vendor choices and disrupt competitiveness.
While business-related transactions overwhelmingly represent cross-border money transfers, global remittances accounted for $831 billion in 2022 alone. As migrants worldwide seek better financial opportunities, remittances provide lifelines for countless families. In Lebanon, for example, remittances accounted for 37.8 percent of its GDP, preventing a devasted economy from completely crumbling. While providing a crucial buoy, many migrants and foreign workers wanting to send money back home are vulnerable to exploitation as they tend to be underbanked and face up to 20 percent in junk fees. The lack of clear regulations regarding cross-border money transfers and incompatible payment options further complicates the process.
Whether the transaction is between a small business and a large corporation, a customer and a leading local service provider, or between a son or daughter working abroad and their parents back home, blockchain technology can improve the experience for all.
Overcoming the barriers
Let’s begin with remittances. Blockchain technology enables cheaper fees, 24/7 operations, instantaneous transactions, a secure and accessible environment, and global reach. Businesses enjoy these same benefits but features like real-time processing, low costs, transparency, and security, offer greater flexibility and the opportunity to scale quickly.
Enabling blockchain technology to reduce dependency on legacy institutions and predatory intermediaries can make cross-border transactions more accessible, efficient, and cheaper. While the blockchain can be accessed globally, it requires an inclusive and standardized system across diverse geographies to reach its full potential.
Trade barriers, regulatory compliance, and multiple currency exchange systems require sovereign nations to agree on a uniform set of policies centered around leveraging blockchain technology with the simple vision of fostering a more efficient and inclusive global payment infrastructure.
To make this happen, leaders across the blockchain, fintech, and traditional finance sectors must strategically cooperate with national regulators to establish reasonable and logical standards. Clearly defined, interoperable, and broad blockchain frameworks can enable funds to flow freely and undisturbed worldwide, rather than relying on bilateral agreements.
While blockchain technology is great at achieving operational efficiency, it is naive to assume that all parties will simply agree to use the same technology. Blockchain technology’s Achilles heel is that the networks fuelling its operations don’t communicate easily with each other or legacy systems. So, swapping out one inefficient system for another isn’t enough.
And in a world where fiat is used to pay bills and buy property, the digital asset ecosystem can’t live in a void and needs to find ways to be compatible with legacy systems. This was once perceived as being impossible without intermediaries but technological barriers are meant to be broken.
Transitioning to a blockchain-based system demands wide participation, coalition-building, and strategic planning, ideally with the support of influential international bodies to lend legitimacy. After all, everyone from individual businesses to governments and international organizations is interested in improving economic functionality.
Emphasizing key factors like interoperability, security, and scalability, alongside shaping appropriate regulatory frameworks and encouraging collaborations with traditional institutions, fintechs, e-commerce platforms, and technology providers is step one. However, in this scenario, current cross-chain solutions like bridges provide limited interoperability at a heavy price that includes security vulnerabilities. With a strategic approach, this ambitious initiative will be able to gain momentum and win support from the public and private sectors.
There is the risk that non-strategic blockchain adoption will further fragment the global financial system. And going back to square one of intermediaries and draconian standards completely erases the freedoms that blockchain technology offers.
But can we avoid intermediaries altogether? In theory, yes. However, it would require implementing a blockchain solution that can easily integrate with any system while utilizing its inherent security attributes. This would enable blockchain technology to fully forgo intermediaries and be compatible across any border or ecosystem.
Deploying blockchain technology to reform cross-border money transfers isn’t about using innovations for the sake of using it, but creating a new path for our global economy to operate at its best. With or without blockchain, cross-border payments and transactions will only increase as our hyper-globalized economic world continues shrinking.
Bolstering this global economic cornerstone is highly ambitious, yet a no-brainer. Making it a reality requires international cooperation and setting aside differences to achieve a greater good. If progress can be made on that front, the rest can fall in place.
