Square-Off: Should Dodd-Frank Stay or Go?
President Trump and many congressional Republicans wants to deregulate corporate America, and the Dodd-Frank Act is the obvious place to start. To date 274 regulations have been promulgated under the law, and 116 more are in the works. The president has, indeed, called for a full repeal of Dodd-Frank. A potentially significant step toward that goal occurred in June, when the House of Representatives voted along party lines to pass the Financial Choice Act, a Republican-sponsored bill that wou ..
American businesses are rarely strictly American any more. A recent Bank of America Merrill Lynch CFO Outlook found that the majority of American CFOs said their businesses had some foreign operations. Alastair Borthwick, head of Global Commercial Banking at Bank of America Merrill Lynch, observed that these companies confront many challenges — including accessing capital, managing risk, maximizing cash, and increasing efficiency — that may require “a wide range of financial solutions.” Bitcoin and other digital currency for multinational transactions could be among those solutions.
Launched in 2009, Bitcoin is a digital currency and protocol that enables worldwide peer-to-peer payments. Free of national boundaries and financial institutions’ fees, it allows its users to send money out of the country quickly and economically, an advantage for companies pursuing growth in a global context. Most companies are still shy of integrating digital currency into their business operations at present, but some say that will change.
“Bitcoin is in its infancy like the internet in 1994 — before mass adoption,” says Alan Safahi, founder and CEO of Zipzap, a global cash transaction network. Safahi is on the advisory board for OpenCoin, the company behind currency transfer system Ripple, and a founding member of the Committee for the Establishment of the Digital Asset Transfer Authority, which is designed to make the digital payment industry self-regulating.
Safahi says Bitcoin could be as transformative as the Internet itself, because it allows people to send money using IP (internet protocol) the way they currently send information. But the digital currency will likely take years to catch on, he says. At present, it is more often used as a commodity by “hobbyists and technology enthusiasts” than as a currency by businesses.
Betting on Bitcoin
But some companies are testing it out. Quantum Networks, a telecommunications and wireless technology company, may offer Bitcoin as a currency through its recently acquired small business funding portal. In an email to CFO, Quantum CEO Ari Zoldan said bitcoin payments are “cleaner, simpler, faster, and all around better.” Particularly for foreign transactions, Bitcoin “reduces the hassle of having to wait for the currency to clear through security protocols, transfer, and then be converted into American dollars,” Zoldan says.
Expensify, an expense report processor, recently made news when it announced that it would allow clients to offer payment to employees in bitcoins. In a statement, the company said it sees Bitcoin as “more than just a gimmick.”
“It is a great solution to a real world problem facing businesses today — international reimbursement,” Expensify said. “Previously, our US [clients] with international employees or contractors were incurring currency conversion or wire transfer fees to the tune of 4% in some cases.” Bitcoin transfers are also secure and fast, the company added.
Expensify has not released any official numbers on client participation rates, but Marketing Lead Ryan Schaffer says there are far more employees requesting bitcoins than companies willing to reimburse expenses in the digital currency.
Indeed, some companies are far more circumspect about integrating bitcoins into their business. One reason: Bitcoin has a reputation for being the currency of choice for those who make illegal purchases, which makes the U.S. governing agencies suspicious of all organizations that use it. Another problem is the possibility that other countries may decide to follow Thailand’s example and block bitcoin trade, which undermines its value as a globally accepted currency. The biggest obstacle to widespread adoption, though, is Bitcoin’s volatility.
The price fluctuations for bitcoins were particularly dramatic in 2013. At the beginning of the year, the digital currency was trading at a value of $13. On April 10, it hit $266. Trading had to be halted by Mt. Gox, a Japan-based exchange that handles a large percentage of bitcoin trade, twice within a week due to the flurry of activity. Bitcoin then settled at around $77. These wild swings deter people from relying on the digital currency the way they do on fiat.
Pyry Lehdonvirta, CEO of SC5, says the Finnish software company’s policy of allowing employees to receive their salaries in bitcoins hasn’t worked out as planned. SC5 developer Martti Malmi created the first Bitcoin user interface, so the company had an incentive to push the digital currency. But Lehdonvirta says that he, like most of SC5’s employees, “stopped taking salary as bitcoins around March” because of the currency’s volatility. He says the intent behind the offer was “to help people spend bitcoins and get into the ecosystem,” not to do have them feel like they’re “plac[ing] bets in a casino.” Even those who like to gamble usually don’t wish to do so with their salaries.
Digital currency has to achieve stability to become useful as currency, and the key to stability is more widespread use and liquidity. That’s the underlying principle of OpenCoin’s contribution to digital currency, Ripple. Ripple can process payments in any form of currency, including bitcoin, with no transaction or foreign exchange fees, within five seconds (as opposed to 10 minutes for processing bitcoins). Ripple’s monetary unit, XRP, functions as “a universal translator” for currencies.
Patrick Griffin, executive vice president of business development at OpenCoin, said in a phone interview that the current electronic payment systems used by banks and other financial services are analogous to the email communication of the ’90s, with separate units walled off from one another. It took a common language to realize the possibility of an integrated Internet. That is what Ripple intends to do with money: “to wire the world of finance together.”
The main differences between Ripple and Bitcoin are that Ripple processes transactions more quickly and that it does not include anonymity as a design goal. Ripple is also positioning itself to identify more as a system than as a currency, to get away from the hoarding of bitcoins that has actually hindered that system’s progress. It may feel like a safer option for corporations that hesitate to adopt a new a currency but can appreciate the advantages of a system to instantly move money, unobstructed by currency differences or fees.
Nevertheless, Bitcoin is gaining recognition. In the U.S., a federal judge declared in an August 6 decision that “Bitcoin is a currency or form of money”, though it will still have to clear legal hurdles in each of the 50 states. Currently, it has better prospects in Europe; Germany, for instance, just acknowledged the bitcoin as a “currency unit,” a form of “private money” that can be used in “multilateral clearing circles.” Since an exchange licensed in Germany can operate in any part of the European Union, this is good news for those who want to use digital currency in Europe.
In any case, as the new world economy calls for a new system for transactions, companies are moving beyond the payment systems put in place more than half a century ago.
Ariella Brown, Ph.D, is a freelance writer in New York, specializing in technology.