- US President Donald Trump is expected to issue an order on Banks owning cryptocurrency.
- The largest beneficiary of this order could be Ripple which provides a cheaper settlement mechanism for banks.
- US banks like Bank of America and other banks like the Russian Central Bank have already partnered with Ripple to use XRPL.
- The XRPL ledger required XRP to pay the transaction fees and this drives the demand for it.
With a new presidential order on crypto expected soon(as claimed by Circle CEO Jeremy Allaire), US Banks could be allowed to own crypto. This could prompt banks to acquire Ripple’s XRP because it is the native token for the XRPL blockchain, which is increasingly attracting banks due to lower settlement costs.
Besides rushing towards Bitcoin and maintaining the corporate acquisition trend, XRP seems the next logical choice. We presume this because it brings many tangible benefits for the banks.
Despite the ongoing SEC case with its verdicts and appeals, Ripple has slowly built a strong partnership in the finance space. Ripple’s XRPL blockchain will act as a mode of recording internal and intra-bank transactions for its partners like the Bank of America.
Why do Banks Want to Buy XRP?
Simple! To save money on settlement costs.
Banks buying XRP has nothing to do with their attitude or affinity towards crypto businesses. Rather, it seems to give them a tangible benefit i.e., it saves them a lot of money by streamlining the settlement process.
Having closely watched banking operations due to my MBA in Finance and being in a close circle of several bankers, I know a thing that at the end of each day, each branch of every bank has to tally their deposits with withdrawals and transfer excess cash to other branches (usually the regional HQ).
All of these activities generate a lot of transactions and also need an immutable distributed ledger, which can record these transactions transparently.
Below is a video of the $50 trillion BNY bank highlighting the role of crypto in financial systems.
XRPL is a Product-Market Fit
Ripple’s XRPL has lately emerged as a key solution for intra-bank settlements (between different branches). Not only does it provide a safe, immutable, and transparent method to settle transactions but also can help transfer excess cash to other branches or HQs without any cash logistic services.
So, by using Ripple’s XRPL, banks are saving money by:
- Simplifying settlement mechanisms
- Making permanent record-keeping safe and easy.
- Saving on cash logistics.
Stellar Lumens (XLM) is another similar product that can act as a settlement mechanism and provide similar benefits. However, it still underperforms in comparison to XRP because of a single factor: Stablecoins.
To use any blockchain, the transfer value between the banks should not fluctuate. Hence, banks cannot use XRP to settle transactions which is highly volatile. A single data difference can cause settlement amounts to fluctuate by billions.
To address such concerns, XRP has recently created a stablecoin called the RLUSD which could act as a fixed-value settlement medium between different branches of a bank or even different banks. XLM unfortunately has not stablecoin.
A report below shows that Russian Central Bank has been closely working with Ripple’s XRPL for cross-border settlements.