Many new fintech and payments startups are now thinking of using bitcoin or other currencies for purposes of remittances. While the gesture is noble, they forget one key element in this flow of funds – what exactly does a central bank look for in remittances?
So the most important thing is they’re looking at foreign exchange coming in. As a central bank of a country, the biggest thing what remittances do is they increase the foreign exchange reserves so when money comes in, the central banks take the money. And you surrender the foreign exchange and you get the local currency instead. The central bank can print as much currency as they want but local currency only. So they take the foreign exchange from you and they give you the equivalent in Nairas or Rupees or Takas or what have you.
What happens on the country level is the dollar reserves or the pound reserves of the euro reserves of the country goes up. So at any
They’re sold on the local exchange and local exchange will give you the local Filipino pesos equivalent. And you know that money is now sent to the beneficiary. The foreign exchange reserves of the country have not improved unless you take those bitcoins sell it in London or you know in Amsterdam and then bring that money back into
What they can do to make it legal is to say okay you’ve sold your bitcoins, rather than selling them locally, why don’t you sell them internationally and bring those dollars in. One of the reasons why they don’t do that is obviously because of arbitrage. The Bitcoin price may be lower in Canada
So if you’re making or designing a remittance product always keep this factor in mind that the central bank is looking at increasing foreign exchange reserves that in your flow of funds and in your transactions at the foreign exchange does indeed come into the country.
I hope I was able to answer the question, until next time, take care.
This page was last updated on December 10, 2019.