Notwithstanding legal and regulatory issues – that would require further consideration outside the scope of this discussion – it is plausible that Bitcoin the system could be used by domestic firms in emerging economies to make payment on international supplier invoices – i.e payment on imports denominated in an international currency. This would allow local currency to be converted outside the banking system, whereby bitcoin the currency is used as a conduit to transfer a local currency to an international currency for supplier payment. Thereby improving access to international currency and facilitating participation in inter-region and global trade for emerging economies.
Within this context it is plausible to further consider that this could be achieved at a lower intermediation cost to the local importer, while providing benefits such as reduced account receivable days to the international supplier. Neither would it call on central bank foreign reserves, that in the right volume would have a positive impact to the balance of payments for an emerging economy – and for the purpose of progressing a somewhat conceptual argument to its logical conclusion – if the adoption of Bitcoin as a system of international supplier payments emerged over the long-term it could establish bitcoin the currency as a medium of exchange and unit of account across countries – i.e. an independent international currency. Cleary there would need to be a significant driving force to overcome barriers – and we are a long way off.
At this point however, it is worth observing that 85 percent of the world’s population come from emerging economies – and that they have contributed to 80 percent of global growth since the 2008 global financial crisis. There is a shifting influence of power in the global economy to these countries – and their access to international trade is impacted by their access to international currencies such as USD and EUR, which are the predominant currencies for invoicing and payment of international trade. These emerging economies also settle trade between themselves in international currencies with high intermediation costs rather than in local currency of either country. Perhaps these forces could combine over time to provide a catalyst for an alternative.
Sourcing liquidity for local currency is a key factor to make international supplier payments more reliable. The problem for importers in emerging economies is that there are fewer buyers and sellers of local currency. This results in fewer bids and asks, making it more difficult for buyers and sellers of local currency to transact. Therefore impacting on reliability of international supplier payments – and their participation in trade. It is plausible in this respect that bitcoin the currency could provide liquidity for local currencies and Bitcoin the system act as a means to pay international supplier invoices in international currencies.
To provide an example, Let us consider a scenario where an international supplier invoices a firm in Kenya in USD (Kenya arbitrarily selected as Africa has been the fastest growing region in the last decade – and the microfinancing service M-Pesa originated there). Technically, the local importer can purchase bitcoin the currency (BTC) with local currency (KES) on an exchange that acts as an onramp – in ten minutes the transaction is confirmed by Bitcoin the system – and the BTC can be used to purchase USD on an exchange that acts as an offramp, where the balance is deposited into a bank account. Clearly this is technically feasible, as this is indeed how current remittance flows on Bitcoin work – and in this example would avoid the high intermediation costs for converting the KES.
Critical to making this example possible is liquidity. Exchanges play an important role in developing liquidity, and most countries have some form of exchange. In Kenya there are no open market or retail exchanges in Kenyan, but BTC is bought and sold through a peer-to-peer trading platform that has about 8,500 USD volume per day, comparable to the BTC exchange trade volume in early 2011 that has grown to a daily trade volume of $135M USD today through a web of exchanges in most countries. As this network of exchanges develop, there is less need to liquidate BTC and trade friction between countries reduces. Therefore it is probable that this international supplier invoicing will develop as local exchange infrastructure develops and local BTC trading liquidity improves.
In summary, Bitcoin the system and the currency absolutely provide a plausible alternative that overtime could develop into a more reliable system of payment for emerging economies to settle international supplier invoices. To make this possible work is required to build exchange infrastructure and source liquidity – and further research is required to understand the legal and regulatory impacts.
Source: http://bravenewcoin.com/news/bitcoin-invoicing-for-international-trade/
