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Cryptocurrencies and Blockchain Technology Look to Expand Their Footprint in Global Trade for FY2022
Since the introduction of cryptocurrency in 2009, each passing year has seen it play a steadily larger role in worldwide transactions, and these effects are starting to be felt in international trade. As the global economy propels forward into 2022, cryptocurrency and blockchain technology promise to have an outsized impact, and the pressure is on traders to understand this fast-changing landscape, or risk falling behind.
Cryptocurrency has become a coveted asset for international traders as the global economy trends digitally and away from physical cash. It utilizes a robust cryptography to ensure the security of financial transactions and unit creation and is desired by vendors who wish to capitalize on the possible benefits of being cashless, including the eradication of exchange rates and lower cross-border transaction fees. Other positive trade-related attributes of cryptocurrency include the quicker movement of money and payment authentication, easily verified record keeping, and the security of payments.
Cryptocurrency has rapidly been gaining worldwide traction– the Bahamas became the first country to recognize and establish a central bank digital currency (CBDC) in 2020. Its Eastern Caribbean neighbors were not far behind, with seven additional island nations launching a CBDC in 2021, including Grenada, Saint Lucia, and Monserrat. Nigeria also made a play in October 2021 by creating the e-Naira, Africa’s first CBDC, ensuring that digital banking was becoming a global phenomenon.
The technology behind cryptocurrency is called blockchain, and it too has major implications for international trade, with the potential to transform it altogether. It can digitize and automate trade-related financial processes, ensuring transactions are faster and more efficient. Paper-reliant transactions are prone to errors, misplacement of documentation, and fraud; additionally, they are costly from an administrative perspective and rely on intensive coordination efforts. Blockchain technology also keeps a permanent, unalterable ledger of payments, ensuring transparency and veracity of financial transactions. Each update to the system is time-stamped, and the blockchain itself is largely decentralized (making it much more resistant to broad-spectrum cyberattacks), which enhances trust within the system.
A caveat to widespread usage of blockchain technology for international trade is the necessity for all involved nations to have digitized their customs systems, which could be a hardship for developing nations, and may make it even more difficult for them to become global trade participants. Furthermore, the computing networks needed to facilitate blockchain transactions require an enormous amount of energy, and climate activists have expressed consternation that this digital technology could hamper corporations’ environmentally-conscious efforts to reduce their carbon footprints.
Cryptocurrency also has its unique set of risks– its legal status remains murky in several countries, and it has a reputation of severe value volatility, making this technology somewhat unreliable for investors and traders alike. There is a lack of regulation with digital currencies, and while this aspect accommodates the ease of transactions for many vendors and traders, it also increases the possibility that criminal organizations and terrorist groups may be using cryptocurrencies to further aims such as money laundering, ransomware, and fraud.
Another risk is the legal aspect of both cryptocurrency and blockchain– international laws are generally behind the latest technological advances, and digital currency is no exception. Vendors could suddenly find themselves subjected to new laws and ordinances as lawmakers turn their attention to this arena, which could in turn cause complications for their businesses.
Overall, cryptocurrency and blockchain technology offer exciting possibilities for the future of global business transactions and international trade, however they also come with the prospect of significant drawbacks. With more countries around the world recognizing their potential, 2022 promises to be a year of major advances for this innovative approach to banking and trading.
Incorporated in the State of Florida in 1992, Allyn International’s experts are well versed in current trade issues. We help our customers navigate novel advances in trade, avoid penalties and fines, and minimize costs. If you have any questions or if you would like any additional information on any of the above matters, please contact Allyn at email@example.com.
Contributor: Jennifer Nowicki
About Allyn International
Allyn International is dedicated to providing high quality, customer centric services and solutions for the global marketplace. Allyn's core products include transportation management, logistics sourcing, freight forwarding, supply chain consulting, tax management and global trade compliance. Allyn clients range from small local businesses to Fortune 500 firms. Allyn conducts business in more than 20 languages and has extensive experience in both developed and emerging markets. Highly trained experts are positioned throughout North and South America, Europe and Asia. Allyn’s regional headquarters are strategically located in Fort Myers, Florida, U.S.A., Shanghai, P.R. China, Prague, Czech Republic, and Dubai, U.A.E. For more information, visit www.allynintl.com.