Is it time to Start Paying Some Suppliers Using Cryptocurrency?

Ripple, BTCCash, Bitcon, Etherium, the list goes on. Can it get any more confusing? With FOMO or fear of missing out, buying crypto wallets is all the rage by the man on the street.

But what about Corporate Treasurers? Should they start preparing to use cryptocurrencies? Cryptocurrencies provide businesses with the ability to move assets outside of the normal banking regulatory framework, and that is not something regulators like. But you can certainly understand why there would be an interest, particularly when sending money to emerging markets, or markets where there are foreign exchange controls.   When a government establishes foreign exchange controls, it forces owners of foreign currencies to sell it to the government to obtain the local currency. There are over 20 “Article 14” countries, ie countries with FX controls, including India, Russia, South Korea, and places like Venezuela, Cuba, and North Korea as well. Please note regulations can be vastly different under each Central Bank.

In addition to eliminating FX issues, paying by cryptocurrencies would be cheaper than international wires for large dollar amounts, and certainly much faster.

When dealing with counterparties for an international purchase order, a company may be paying multiple parties to pay – forwarder/consolidator, manufacturer, factory, buying or selling agent, container freight station, shipping line, etc. These all need to be reconciled back to the PO level (or individual SKU level, particularly for landed cost calculations to support pricing). Suppliers in these markets may be happy to get their bitcoin equivalent, but they will need to be able to reconcile cryptocurrency payments back to the original invoice details.

So why hasn’t this happened yet. As one treasurer said, blockchain is not necessarily a starting point for a general treasury. There is enough going on in the CFO/Treasurer’s world with rising rates, moves away from LIBOR, trade agreements, FX, regional treasury centers, regulations, etc. to make it hard to move up on the agenda on skunkwork projects like this.

And the volatility so far has been in one direction, up, up and away. But we all were taught what comes up, must come down. So it is difficult to pay someone in something where you dont know the value next week, forget about next month. And for procurement contracts that would be tied to cryptocurrency payments, this can be a problem as well.

But spending time on new innovations that can help both inject liquidity in the supply chain and reduce financing costs is a worthwhile pursuit.

The current providers and challengers are not standing still. SWIFT has been the dominate player on the B2B cross border payment space for decades, but that is being challenged. Ripple has emerged with a cross border payment platform using a private blockchain and digital currency (XRP) and transactions are real-time. Earthport connects to domestic ACHs and also claims to have real-time transactions via Ripple.  SWIFT has responded with their Global Payment Initiative which I wrote about here.  Visa B2B Connect is also building a private blockchain and targeting high value payments.  The race is on, and certainly companies will benefit as they find faster and cheaper solutions, and more transparency.

I will be conducting research in this space in 2018, and I am interested in a few things. First, are any procurement or treasury folks receiving inquiries from suppliers or partners asking, “Can you pay our invoice in Bitcoin?” or are any Finance folks hearing “Can we pay your invoice in Bitcoin or ether?” Second, which if any of the above providers (or others) offer solutions that can mesh with your own requirements.  Any corporates interested in speaking further about the above, please contact me.

You can reach me at dgustin@globalbanking.com

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