A study by the Bank of Italy shows stablecoins may not reduce remittance costs compared to traditional methods, revealing hidden fees.
Research from the Bank of Italy reveals that using stablecoins for remittances may not lead to reduced costs compared to traditional methods. The findings suggest that hidden fees often negate the anticipated savings associated with stablecoin transactions.
High Costs Persist Despite Blockchain Advantages
A recent analysis conducted by the Bank of Italy examined 200 USDC remittances across ten international corridors, with total costs ranging from 0.3% to nearly 9% of the amount sent. While blockchain transaction fees were minimal, other charges such as exchange fees and local banking costs represented the bulk of expenses.
Despite stablecoins facilitating quicker value transfers, the study highlights ongoing challenges, particularly the "last mile" issue where converting cryptocurrencies to local fiat currencies incurs additional costs. The report, titled Markets, Infrastructures and Payment Systems Paper No. 86, involved transfers from Italy to countries including Argentina, Brazil, South Africa, the UAE, and Japan.
Settlement times varied significantly, with some transactions completed in about 20 minutes using domestic instant payment systems, while others took up to two business days when relying on traditional bank transfers.
Identifying Key Issues
The study indicates that while stablecoins can lower costs in specific situations, the overall remittance process remains expensive due to multiple intermediaries involved in currency conversion. These findings challenge the common narrative that stablecoins are a panacea for reducing remittance costs.
Many promotions for stablecoin remittances focus on the low costs of transferring tokens on blockchain networks. However, recipients typically require local currency for daily expenses, meaning that each conversion incurs additional fees and foreign exchange markups.
The Bank of Italy acknowledges the potential for stablecoins to improve efficiencies and reduce costs in certain corridors, particularly as regulatory frameworks like Europe’s MiCA initiative evolve to support better integration with digital asset infrastructures. Nevertheless, the study emphasizes that the current remittance landscape often replaces traditional banks with new intermediaries, rather than eliminating them entirely.
In conclusion, while stablecoins have made strides in transferring value across blockchains, the challenge of ensuring that recipients can access usable funds remains a significant hurdle. As the market matures, there is potential for cost reductions, but foreign exchange spreads will likely remain a fixture in international payments.
