Ripple insists that XRP is 10 times safer for making international payments that fiat currencies that today are still a more popular option.
Ripple is a real-time gross settlement system and a form of currency exchange. Banks and financial institutions have the cryptocurrency XRP which is used in a row of Ripple’s solutions, as a settlement infrastructure technology. Payments done using it are irreversible, and there are no chargebacks.
In its study Ripple analyzed huge data to conclude why XRP should be perceived as a more appropriate and promising option for cross-border transactions if compared with fiat currencies that still dominate this industry. Ripple’s study compares a typical wire transfer between U.S. dollars and Mexican pesos. Ripple acquired a stake in MoneyGram to use XRP in payment flows through Ripple’s payment network xRapid to speed up and cut the cost of transferring money. Moneygram and other clients of Ripple are contributing to a 50% boost in XRP transactions by sending dollars into Mexico using XRP as a bridge.
International wire transfers through SWIFT take anywhere between 1-14 days to clear and increases settlement risk. Ripple average transaction takes between 5-7 seconds to clear. However, XRP is very volatile, if users were to hold XRP for a few hours while making an exchange, the value of their capital could change significantly, sometimes as much as 30%.
XRP’s biggest advantage is its speed. Ultimately, the speed of an XRP transaction means that transaction partners are in and out of the digital asset so fast, there’s no need to hedge. The resulting risk is much lower with a digital asset.
Ripple CEO Brad Garlinghouse said:
“An XRP transaction would still turn out to be less volatile if multiplied 270,000 (which is just over 72 hours) in a conventional low-volatile asset like fiat and compare that to a high-volatile asset like XRP with three to four seconds”.
While SWIFT gpi is faster and a better experience than the standard legacy messaging network, Ripple says that it still relies upon correspondent banking and the need to hold cash in foreign banks to satisfy the eventual transaction settlement, whereas the Ripple xRapid solution uses cryptocurrency as a proxy for spot FX trades and near a real-time settlement. There is about $5-10tn that is stuck in pre-funded accounts around the world. If banks can use Ripple’s solutions to settle key currencies, it would reduce operating costs, working capital needs and improve earnings and free cash flow.