Ripple CEO Brad Garlinghouse recently stated that the use of XRP for international payments can reduce price risks for banks and payment providers. On 8 October he spoke at the Economic Club of New York about the benefits of XRP in cross-border transactions. Yesterday, Ripple posted a calculation on its website based on this statement by the CEO: this shows that XRP is ten times less volatile for international payments than fiat currencies.
“Crypto has just started”
Brad Garlinghouse attended the Economic Club of New York in October. In a conversation with Liz Claman from Fox Business, Ripple’s CEO discussed the development of cryptocurrencies and blockchain. He explained on the basis of a baseball analogy that, according to him, the crypto market is about to begin:
I think the crypto industry is still developing. People sometimes ask me: ‘How far are we now with the crypto market? Which inning are we in now? ‘ I think the game has yet to start, let’s say: we are not even in the first inning. When I see how it develops, I see many similarities with the internet in the 90s. It feels a bit the same because I think that blockchain and cryptos will have an impact on many markets.
He described how XRP can improve international payments, and how it offers benefits to payment providers and banks. The Ripple CEO set the example for MoneyGram, one of the world’s largest payment processors. Compared to fiat, XRP can shorten transaction time, save costs and improve the competitive position of the company. For that reason, MoneyGram is one of the companies that use XRP for international payments. Incidentally, there is another big advantage of using Ripple’s crypto-token, he said: companies and banks no longer have to keep pre-funded accounts with partners. This is necessary for the fiat system because otherwise, transactions take days to complete. By using XRP, the bank or company can add these amounts to the active cash flow, Garlinghouse said.
Is the price of XRP too volatile?
Further in the conversation, the Fox presenter asks if crypto rates are not too volatile to use them for transactions. This is a question that has been asked several times from different angles, often as an argument against the adoption of cryptocurrencies. However, according to Garlinghouse, this assumption is invalid. He thinks that by using XRP, banks and companies run a much lower price risk:
If you multiply 270,000 seconds [the average duration of a cross-border transaction, ed.] With a fiat currency, and you compare that with three or four seconds in a volatile means of payment like XRP, you see that you are using XRP end up with less price risk than with fiat.
Yesterday Ripple responded to this claim on their website. The article works out a calculation to fact-check the CEO for his statements. Two possible transactions are being looked at: one is completed with XRP, and the other is a traditional fiat transaction. To complete the calculation, they look for the results for several scenarios: a rising rate, and a falling rate, and the rate during September 2019.
The figures show that Brad Garlinghouse was absolutely right: an average XRP payment has ten times less volatility than a standard SWIFT payment with fiat. According to the article, a minute of XRP price risk is on average approximately equal to 2 hours of fiat price risk.
The battle with SWIFT
Although this difference seems large, Ripple is, therefore, the better option for international payments. This is because ‘cross-border’ transactions through the outdated SWIFT network can take up to four days. With XRP the majority of the assignments are completed within a few seconds. As a result, a bank only has to run an exchange rate risk over the XRP price for a very short time, as described in the article. It is therefore logical that companies like MoneyGram are so positive about the benefits of XRP for payments, the article on the Ripple website concludes.
This week Bitzarena wrote that Russia, China, and India may consider using Ripple’s token as an alternative to the SWIFT network. The three countries are busy creating an alternative to the globally dominant SWIFT. This company has been responsible for international payments since 1973. Today, more than 8,000 banks, payment providers and institutions are affiliated with SWIFT. Yet many people agree that this network is seriously outdated and that it cannot go along with this time. Ripple’s major objective is to streamline (international) payments. They want to solve the shortcomings of SWIFT with XRP, by offering faster and cheaper transactions for financial institutions.