How can Blockchain technology help in international payments (remittances)?
International remittances with forex conversion happen through the Central banks, correspondent banking relationships between banks on either side of the remittance transaction.
The Nostro accounts of the bank that initiates remittance transaction, with the correspondent bank will be used for reconciling the funds transferred. Ofcourse, other than the correspondent banks and central banks, the banks or entities that would provide forex services also will play a significant role in these remittances.
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This shows us a lot of intermediary financial entities just act as mere conduits for such funds transfers for a transaction fee. The more the number of intermediaries, the more fees to be paid by the transferee and would add unwarranted delays in remittances. These remittances in some geographies would take a few days to even a few weeks in some extreme cases as opposed to realtime or near real-time funds transfers.
Blockchain technology will help minimising these intermediaries, by enabling the peer-2-peer cross-border remittances. For an efficient funds transfer, the fiat currencies will be converted to digital currencies (also known as “tokenized” assets), and allocated to members of the blockchain platform.
The members will then be able to initiate a cross border remittence using these tokenized assets. The member banks, currency issuer banks, and forex conversion service providers will have to be onboarded into a private blockchain network.
The member bank will be able to initiate a cross-border remittance using a cryptographic signature. The blockchain protocol / consenses algorithm will ensure the prevention of double spending by the remitting member. This way, the blockchain technology replaces the central entities (intermediaries) in such remittances and thereby allowing cheeper and near real-time funds transfer between member banks.
