It’s also useful for transmitting money long distances when banks won’t do business and you want to avoid a paper trail (drugs). Fiat is perfectly fine for in person transactions, but not when distance is involved. You may or may not morally agree with it, but this is a proven use case.
It's bad for that, we've been through this. To send money you have to pay ~1% to an exchange in your home country, wait a few days for it to clear exposing yourself to huge forex risk, pay a $1 transaction fee give or take, then pay ~1% to an exchange in your destination country netting you 3-5 days latency, 2% fee plus $1 plus 10 minutes and incalculable forex risk. And the risk your exchange will literally just steal your money a la Quadriga. Or getting it confiscated en route like the $825M taken from Bitfinex by various government entities for laundering money.
There are a lot of solutions to this problem ranging from a credit card to buy things, TransferWise (0.85% fee give or take) to Interactive Brokers ($20 per million fee, or 0.002%) to Norbert's Gambit (free) to a wire transfer if you have to settle instantly. Or even just opening an HSBC account in both countries and moving the money instantly online via web banking.
Then there's Square Cash and Venmo for free domestic transfers, the free/instant domestic RTP network in the US, the free/instant SEPA network in Europe and the often free/instant Interac e-Transfer network in Canada.
> ...and not very scalable.
According to the Bank for International Settlements triennial report of 2016, the foreign exchange market cap averaged $5.1 trillion per day.
That's $1,861.5 trillion dollars per year. Forgive me for thinking that means the scaling issue is pretty much solved. It's probably the single most liquid market in the history of the world.
> It’s also useful for transmitting money long distances when banks won’t do business and you want to avoid a paper trail (drugs).
I did say a legal use case. One that neither violates laws nor sanctions. Worse, Bitcoin leaves you with a paper trail. You'd have to use Zcash or Monero.
> Fiat is perfectly fine for in person transactions, but not when distance is involved. You may or may not morally agree with it, but this is a proven use case.
It is, though, because you can use your Visa card to send money instantly to anywhere in the world that isn't sanctioned.
But still, definitely a promising improvement over ACH.
It is a practical problem that the merchant has to wait 24-48 hrs for funds. It's a cash flow problem. It slows down the speed at which that cash can be used to purchase other goods or services. For example, a made-to-order business has to wait for funds to clear from a customer (or front the capital) before they can turn around and order goods to produce the product a customer is purchasing. Which slows down delivery. And that effect is amplified across the whole supply chain.
No. That's what lending is for. Square will allow you to cash out instantly for a 1% fee, they offer merchants a debit card they can use to access the funds in real-time as they're received for no additional fee, or you borrow some amount of float at today's incredibly low interest rates.
As a business in need of liquidity you can even sell your accounts receivable for less than 1% to invoice factoring companies. There's so many options out there.
Or the merchant can open a credit card and get fee-free interest-free loans for a whole month.
This is not an issue today, or rather, you’re making mountains out of molehills. There are ways of addressing this without crypto or throwing out the existing financial system. But more importantly what how many merchants wait for funds to clear before they go out and buy the supplies to do a job?
AWS became successful party because of the "micropayments for servers" style hourly model.
Micropayments are most certainly a limitation of the current financial system: Pulling together all the disparate banks of the world to cooperate to create a global API to facilitate payment for <$1 amounts? Don't assume that all problems are technical: This would be near impossible, where cryptocurrencies are doing this right now.
Flattr isn't micropayments. You as a reader pay a decidedly non-micro amount into a pool monthly that's then divided between flattr sites based on apportioned viewership on a monthly basis. This is the Netflix model, and exactly what I suggested. This is accounting, not micropayments. Neither the viewer nor the content creators ever transact sub-penny amounts, they only exist in the context of calculation and apportionment. And they do this specifically because people don't want to make individual purchasing decisions.
> AWS became successful party because of the "micropayments for servers" style hourly model.
Again, that's accounting, or more accurately, metered billing. A low price for services is not micropayments either.
> Micropayments are most certainly a limitation of the current financial system: Pulling together all the disparate banks of the world to cooperate to create a global API to facilitate payment for <$1 amounts? Don't assume that all problems are technical: This would be near impossible, where cryptocurrencies are doing this right now.
If this were something people wanted, you'd load up a, for instance, PayPal account and drain it pennies at a time. Once an aggregate payout to a specific merchant exceeded the transactable threshold it would execute automatically. This can be done today. People just don't want it.
More importantly though, people have learned not to value content. This is a huge problem for the media industry. Nobody wants to pay anything at all for what they create, they want to pay with their time and attention - through ads.
I get it, you want to play devils advocate, but every example you gave solves a problem that isn't "real time cross border remittance and settlement". They either aren't cross border (Venmo/Square Cash), or don't actually result in settlement (TransferWise, Norbert's Gambit), or aren't realtime (Interactive Brokers takes 3 days to settle your account FWIW).
EFT transfer to an exchange, purchase crypto (1% fee), withdraw to a different exchange ($1 fee), sell crypto (1% fee), SEPA transfer to recipient.
Classic path:
TransferWise handles everything (0.85% or less). Or:
EFT transfer to Interactive Brokers, FOREX exchange ($20 per million), withdraw via SEPA to Croatian account. They allow you to link both AU and Croatian accounts. Or:
Open an HSBC account in both places and use the online instant account-to-account global transfer tool (rates vary, ~2%) and send a SEPA payment. Or:
Wire money (pricey). Or:
With a brokerage account and an established business you can instantly make your payment through margin (3.9% per annum). IB will allow you to borrow Hrvatska kruna and withdraw instantly via SEPA payment. Then you can transfer in Australian dollars over EFT at your leisure.
Seriously, this is a solved problem and the crypto path is not faster, it's not safer, it's not cheaper, it's not easier.
TransferWise doesn't do settlement. You still have to pay a merchant with a card who then needs to settle. No actual money is being settled through TransferWise.
> EFT transfer to Interactive Brokers, FOREX exchange ($20 per million), withdraw via SEPA to Croatian account. They allow you to link both AU and Croatian accounts.
EFT transfer to IB isn't instant. SEPA requires you to be using Euro. SEPA does handle settlement, but you still need to do settlement with both the EFT transfer as well as within your IB account. IB does have programs to allow early withdrawal before your account is settled if you quality, but again that isn't settlement.
> Open an HSBC account in both places and use the online instant account-to-account global transfer tool (rates vary, ~2%) and send a SEPA payment.
Again, SEPA requires you to be using Euro. Additionally, you would need to do settlement on the initial transfer to HSBC.
> Wire money (pricey).
The company you're using to wire money needs to handle cross border remittance and settlement, so how do they do it?
Just to reiterate... you've done a fine job explaining how a consumer can send money across the globe. You're not wrong to say that as a consumer there are perfectly acceptable solutions that can accomplish what they need. What you've completely failed to do is explain how to accomplish "cross border remittance and settlement" using Fiat in a way that is fast, doesn't require vostro account (i.e. illiquid reserves), and is scalable with the number of possible banks you'd need to transfer money to/from.