According to The World Bank, total global remittances reached $689 billion in 2018—an increase of $56 billion since 2017. Moreover, the cost of sending money is also high. In the first quarter of 2019, the global average cost of transferring $200 was around $14 (7%). Banks and post offices, two of the more traditional money transfer service providers, are the most expensive channels, charging average fees of 11% and 7+%, respectively. Because transfer fees are high and add up over time, people all over the world are looking for a less expensive alternative—and they’ve found it in crypto, the cheapest way to transfer money internationally.

The Costs of Transferring Money Across Borders: Traditional Methods vs. Crypto

International money transfers by any method have hard and soft costs. Hard costs are the disclosed fees charged to process transactions and convert currencies. Soft costs are those resulting from the risks senders and recipients take when relying on third parties to execute transfers. Soft costs, such as currency price fluctuations, can be unpredictable and lead to surprise increases in fees and transaction times.

The hard and soft costs of international money transfers.

Cryptocurrencies, especially MakerDAO’s decentralized stablecoin, Dai, offer cheap ways to mitigate the high costs and downsides of traditional international money transfers. The benefits of crypto, from the flexibility of peer-to-peer transfers and the immutability of blockchain technology to the sheer speed of transactions, become clear when the options are compared.

Hard Costs

Transfer (Transaction) Fees. Transfer fees vary greatly from one service provider to the next. For example, at the time of this writing, Bank of America charges $45 for international wire transfers of USD from the United States, while Western Union charges $9 to transfer $1,000 USD from a WU location in the United States to a WU location in Argentina.

Cryptocurrency transaction costs, on the other hand, are much lower. The average transaction cost for Ethereum-based transfers in 2019 was just $0.002 USD (based on average Wei of 16.2017401535644 in 2019). Wei is the smallest denomination of Ether (1 Ether = 1,000,000,000,000,000,000 Wei (1018).

Conversion Fees. Currency conversion can be a tricky process due to the constant fluctuation of exchange rates. Plus, conversion fees aren’t always transparent. Traditional currency exchange providers embed fees in their rates, making it difficult to separate currency valuations from service charges. Wells Fargo explains it this way on its website:

The foreign currency rate typically includes Wells Fargo’s sell or buy rate for that particular foreign currency, and/or a charge in order to compensate Wells Fargo for any number of considerations, such as risks taken, costs incurred and services rendered (i.e., “mark-up”), including the amount of revenue Wells Fargo expects to earn as a profit.

The decentralized nature of some cryptocurrencies, however, coupled with on- and off- ramps that enable the purchase of crypto using fiat currencies and the transfer of crypto, mean very low currency conversion fees for users. Maker’s partnership with Wyre, a blockchain money transfer company operating a regulated global payment infrastructure, underscores this benefit. Users in over 30 countries benefit from fast, compliant, and low-cost conversion of Dai to fiat currencies, and vice versa.

Gustav Arentoft, Maker’s business development lead in Europe, discusses international remittances at an event in Manila, Philippines.

Soft Costs

Price Fluctuation Risk. Currency values rise and fall based on supply and demand. Prices can also fluctuate due to geopolitical and economic events. Some of those fluctuations are extreme. For example, the value of the Argentine peso declined 30.3% on August 12, 2019 to a record low of 65 per one USD due to political unrest.

Stablecoins offer relative protection from such price volatility, however. For example, Maker has partnered with Ripio, a company with an app for storing and exchanging cryptocurrencies for pesos. As a result of the partnership, individuals in several Latin American countries are able to mitigate volatility using the Dai stablecoin accessed via fiat on- and off-ramps.

Counterparty Risk. When an individual relies on a third party to complete a financial transaction, there is a degree of risk that the third party won’t live up to its obligations. A bank, for example, might experience a service outage during business hours, which could be devastating for those sending/receiving funds at a crucial time. Funds may not be safe in transit or may not arrive as scheduled, or at all!

In contrast, Dai addresses counterparty risk by leveraging decentralization and the blockchain’s network of computers, which ensure that there’s no single point of failure in the transfer of Dai between two parties.

Crypto Is the Key to Low-Cost International Money Transfers

Compared to traditional cross-border cash transfers, transferring crypto such as Dai internationally is a cheap and risk-mitigating choice that offers greater financial freedom to all.

If you’re interested in using Dai for cross-border transfers, buy Dai on an exchange, such as Coinbase, or generate your own Dai by creating a Maker Vault.

DISCLAIMER

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. Charts, graphs and references to any digital assets are for informational and illustrative purposes only.

Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any purchase decision. The content speaks only as of the date indicated.

