During the last few years, Ripple has been expanding its services and the usage of the XRP cryptocurrency for cross border payments. However, many analysts considered that using XRP to process these transactions would increase volatility for the parties involved in the transfer.
In a recent article released by Ripple, they explain how XRP cross-border transactions are one-tenth as volatile as fiat for transactions across borders.
XRP Is Not As Volatile As Fiat
In a recent article released by Ripple, they explained how it is possible for XRP to eliminate pre-funding in today’s banking network.
A few days ago, Brad Garlinghouse, Ripple’s CEO, discussed with Fox Business anchor Liz Claman the different use cases for XRP in cross-border payments.
Garlinghouse explained that low volatility assets that take a long time to settle are more volatile than a highly volatile asset that take just 3 to 4 seconds to be transferred.
About it, Garlinghouse mentioned:
“If you multiply 270,000 seconds [just over 3 days] in a low-volatility asset and you compare that to 3 or 4 seconds in a highly volatile asset like XRP, it turns out you are taking less volatility risk with an XRP transaction than you are with fiat.”
Ripple presented data showing that a typical XRP payment has 1/10th the volatility and exposure of a typical fiat SWIFT payment, which can take several days to finally be settled.
For example, one to two hours of fiat volatility is equivalent to one minute of typical XRP volatility. At the same time, even during highly volatile periods, XRP must be held for an hour to have the same volatility as a fiat payment.
This means that it is much safer to send a transaction using XRP rather than with fiat currencies. As Garlinghouse always explains, the fastest way to send money from Washington to London is by taking a plane and carrying the money there.
Mr. Garlinghouse explained that by reducing pre-funding accounts around the world and making the whole system much more efficient, it would be possible to welcome new individuals on board.
Companies have large amounts of money in pre-funding accounts that they use when they want to make transfers in certain corridors. However, these accounts could have 60% the funds they currently have, releasing a large amount of money to the market via investments.
Digital assets have an unfounded criticism around volatility—so we crunched the numbers and found that a typical XRP payment actually has 1/10th the volatility exposure of a typical fiat SWIFT payment. #dothemath https://t.co/A7xioZvR2M
— Breanne M. Madigan (@BreMadigan) October 31, 2019