Ripple and the Titans of Money

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Ripple has positioned itself to be an intermediary between the various international firms that exist in their own fiefdoms and it has developed a purpose that will allow it to coexist with the sword of Damocles that hovers over the cryptocurrency space – those central bank issued digital assets that threaten to throw the lesser cryptocurrencies into the scrapheap of forgotten technologies. Nation-states and central banks have begun dipping their toes into the water of digital assets and exploring the utility that the fast flow of digital money can bring. There is no question that their adoption will render the less adaptable cryptocurrencies useless. Governments jealously guard their ability to control monetary policy within their territories. They guard the ability to hold a monopoly on the issuance of currency because of the implications to their sovereignty that the loss of control over their monetary policy would bring about.

Decentralization still has an important part to play in the global economy. Dr. Raghuram Rajan on stage at Swell 2019 indicated that the digital assets that will find success in this new world will be those that can find a divergent “raison d’etre” once central banks start issuing national currency tokens. This statement was directed particularly at Libra which promises to be a USD backed stablecoin.

Once you’re able to send a USD token person-to-person, a digital stablecoin backed by a local currency will likely be supplanted by central-bank issued digital assets. Other mechanisms of exchange would suffer as well. Why would an average citizen use something like Bitcoin, Nano, or even XRP when they could use the digital Dollar to transact locally? Dr. Rajan argues that the utility for a cryptocurrency like XRP comes from its ability to seamlessly bridge two kinds of assets between international entities that do not necessarily trust each other. Part of that is because XRP is a digital asset that holds value independently of any national currency. The infrastructure that Ripple has created with ODL allows them to be an intermediary between international entities. The decentralized XRP ledger ensures that neither entity needs to trust their counterpart’s digital asset implementation.

Dr. Rajan had this to say about the possibility of currency like a digital Renminbi becoming a global reserve currency:

I would argue that it may facilitate domestic transactions, but it’s not clear to me that it has a big impact on international transactions. At the simplest level, what I would think the way it would operate is: I take back a currency note and issue a corresponding digital token and effectively what that reduces is the transaction costs of transmitting that within the country to anybody else. I couldn’t do it with a currency note. I can do it with a digital token. Would it change anything on the international side? I doubt it. Would it make China more of a reserve currency? I doubt it. What that requires is a whole set of issues with reserve currencies, the ability to go in and out of the Renminbi, have investable assets in the Renminbi and so on, and have a very liquid market for financial assets. All of which in my mind are sort of peripheral to the kind of tokenization we talked about. If the world moves to digital tokens – there’s a digital Dollar and a digital Renminbi – perhaps at the periphery, it may make the exchange transaction easier, but you may still need an intermediary facilitator of the kind that we’ve talked about such as XRP.

How well does Ripple’s software work as an intermediary between firms and people wanting to move money internationally? A panel of adopters at Swell discussed just that. Michael Brooks, Founder and CEO of Golance had this to say about his experiences with Ripple’s tech:

We can put a man on the moon we can find water on Mars, but I can’t send a wire on Sunday. To be able to press a button with our application and have money move through US fiat and through XRP within seconds, out of XRP, and into one of these more challenging corridors at 5 am on a Saturday is earth-shattering. And it’s just a competitive advantage that makes an everyday payday for my people. And that’s the delta between winners and losers in my business.

Barbara Gonzalez, Head of Finance at Bitso said this:

You see the two screens, and you see how money travels so fast, and within a minute, you have the money that you want to transfer that used to be transferred in a week-long process, and now it costs cents on the Dollar. From a customer perspective, it has been a wonderful experience, and for us, the partnership with Ripple is just so important, and it’s such a key part of our business today.

MoneyGram CEO Alex Holmes indicated:

Having that on-demand liquidity – so knowing how many pesos I’ve moved, what time of day, what the peso rate was and then be able to actually buy your Pesos at that same time land them in Mexico for the purposes of settling is really pretty phenomenal.

Nation-state currency tokens will emerge in their localities with hundreds of millions of users overnight, and the cryptocurrencies that survive are going to be the ones that solve specific problems beyond a simple transfer of currency from person to person. Problems like the lack of trust between entities globally create the need for an intermediary that can operate in a decentralized manner. Ripple has built software that operates on a decentralized ledger that is peerless in terms of speed and ease of use. This technology enables firms to jump the gap across a large variety of international corridors and this should give Ripple and XRP the ability to survive amidst central bank backed digital tokens. Micropayments of the kind found with Coil, which use low-cost cryptocurrencies like XRP provide an additional use-case for content creators from all over the globe. It is this fusion between Ripple’s software and their decentralized cryptocurrency that will provide Ripple with an advantage over competing projects as the world transitions towards digital currency technologies. The idea is to coexist with state backed digital assets as replacing them is likely a fantasy.

Header photo by Francisco Ghisletti on Unsplash

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