The rise of digital currencies could have a massive impact on financial systems, central banks and B2B trade as a whole. B2B payments have already come a long way from cash and paper checks with the rise of ACH and credit cards. Now many are wondering if the future of finance is based around digital currencies.
A recent eNews poll revealed 9% of credit departments say they are facing more pressure to accept digital currency as a form of payment. "I think as we keep going down this road, we are certainly moving more toward the digital direction," said Karen Hart, Esq., of Bell Nunnally & Martin LLP (Dallas, TX). "It's likely for markets to demand it more in the future—whether crypto or some stable type of coin. It would depend on the business or industry and keeping up with those trends so you are not behind the curve. In the near-future I think companies will have to start to plan for it."
Though these currencies can provide seamless transfers and make transaction costs cheaper, digital currencies are more vulnerable to swings in the market and cyberhacks. "We haven't seen an outbreak yet in digital currencies," said Fred Dons, director and head of CTF flow Netherlands at Deutsche Bank (Amsterdam, NL). "However, countries that currently have issues in getting dollars or euros are able to pay with digital coins such as Ethereum and Bitcoin. The only issue lies within receiving those currencies."
The idea of digital currency in B2B trade is mostly theoretical at the moment, said Dons. "There is a definite ask of using digital currencies for payment, but clients I work with are not willing or able to receive those right now," he added. "The risk of accepting cryptocurrencies is not knowing the origin of the funds."
For example, if a customer's payment is checked through a bank for clearing, one could assume the bank did its due diligence to confirm the money is coming from a clean source. For a digital currency such as Bitcoin, it is not fully possible to know. "Once you have to transfer the digital currency into physical money, your bank is going to ask questions," said Dons. "But there is no clear paper trail, and that is a huge gap right now. If larger banks are not willing to do the clearing for you, it will be a gap going forward."
A more regulated form of digital currency, however, is already underway in several countries—including The Bahamas, India, Nigeria, Brazil and many others. Central bank digital currencies (CBDCs) are government-issued currency regulated by a country's central bank. Restructuring payment systems to incorporate digital functions could increase domestic and international transaction speed, reduce costs and increase financial inclusion for those without access to traditional banking services.
Despite talks of de-dollarization, digital currencies are not strong enough to use alone. 88% of international transactions are conducted in dollars, accounting for 58% of global foreign exchange reserves. Economic uncertainties such as high interest rates and the previous debt-ceiling scare rose a few red flags for other countries who primarily dealt with the dollar. With several countries attempting to change the geopolitical and financial landscape, Brazil, Russia, India, China and South Africa (BRICS) continue to fight for separation from the dollar by creating their own form of currency.
"As a recipient, if you don't have the infrastructure to immediately convert to a regular currency or if you want to store it for longer periods of time and you are able to, you still run the risk of exchange," said Dons. "Right now, the volatility of digital currencies is still too high to accept them. Even with the famous Bitcoin, its value increased dramatically over the last four to five weeks, but can go down overnight as well."
-Kendall Payton, editorial associate