Sunday, December 14, 2008

Cross border payments

With more and more cross border payment mechanisms being deployed, most of these electronic solutions, one should be aware of the implications. Mobile payments are being touted as the catalyst to ensure that more people can participate in electronic transfers in multiple currencies. A more efficient and less expensive mechanism will definitely lead to bigger volumes in both transactions and value. Cash based (and illegal transactions) should reduce as subscribers start to experience the benefits of electronic transactions.

This would lead to an increase in monitory flows across borders.

What I have found interesting in thinking about this future, is the secondary impact that this will have on the macro-economy. I am not an expert in economics, but I feel it would be interesting (and prudent) to build some economic models to look at the following impacts of an increase in exchange rate based transactions:

  • The impact on exchange rate movements and market dynamics that can influence these indexes. I am sure that a more competitive and transparent market would look to different behaviour in terms of how exchange rates behave.
  • I am also sure that higher volumes of remittances and transactions that can respond to changes much faster, will have a marked impact on local economies. On the one hand this could potentially stimulate individual economies, but I am sure, will also react to instability and political shenanigans much more quickly.
  • The impact on and the effect that this much more dynamic financial world would have on regulatory dispensations would be interesting. One thing is for sure, it would become much more difficult to control financial behavior by means of direct interventions.

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