Forever Exchange; Why Forex Is Crypto’s Next Killer App

Foreign Exchange (Forex), the trading of fiat currencies, is a foundational brick in the global economy. Every day $7.6 trillion dollars flows daily through these markets, the product of individuals, businesses, traders and investors swapping different national currencies out of need and speculation.

You perhaps may only be aware of Forex through Instagram influencers boasting of spectacular gains with thirty minutes work (they’re lying, Forex trading is tough), but Forex is in fact an essential part of the global world order.

If a company in Angola wants to invest in a Chilean wind farm, they use the Forex markets. If a Polish contractor wants to send money back home, they use the Forex markets. If a Japanese bank wants to hedge soybean futures on the US stock exchange, they use the Forex market. You, when you go to the airport and pick up your holiday currency (slightly quaint, but bear with me), you use the Forex market.

The Forex market, its health and its operation, make massive differences to the daily lives of hundreds of millions of people at every level of the food chain, from migrant workers to c-suite executives. Forex matters. It matters a lot. It changes the fate of companies. It changes the fate of nations. The 1997 Asian financial crisis was precipitated by the inability of Thailand to defend its fixed exchange rate to the dollar. Argentina’s lack of forex reserves have repeatedly tanked the value of its currency. Even supposedly sophisticated financial nations like the UK suffered the infamous Black Wednesday where one trader, Soros, shorted the pound and nearly crashed the entire economy. Did we say already that Forex matters?

And for the longest time, this system hasn’t changed one bit. It’s stuck in the past, with ancient bureaucratic systems, walled gardens, and rent-seeking intermediaries. It’s a closed system whereby established players are the only conduit to activity. The premiums you pay at the airport are a direct result of this system. You can probably stomach that. However, that 0.5% when you’re investing hundreds of millions of dollars abroad stings. For a foreign worker on low wages, seeing several basis points lopped off every remittance home can make the difference between eating and not eating. The system as it sits cramps investment and stifles innovation everywhere, so why do we put up with it?

Well, because in the exchange of currencies you have the moment of settlement risk, whereby you send the $1,000,000 and wait for the £780,000 back. Who’s facilitating that? That exchange needs to, obviously, be mediated and secure. That’s what costs money at the highest level. That filters down into the whole assorted paraphernalia of trading fees, spreads, clearance, premiums, rollover fees, maintenance, commission and the rest of the laughably long list repeatedly hacks away at any profitable trading strategy and ensures that, ultimately, you will always swap one national currency for another at a loss to its true, ‘fair’ market value.

Another side effect of Forex is its ‘dollarization’ of the global economy, which acts as a peg for many national currencies and as an intratrade instrument when moving from one currency market to another (as everyone has a market pair with USD, like most crypto has a market pair with BTC in crypto). This has assured the primacy of the US in the world hegemony just as much as any aircraft carriers ever have, and is one of the main reasons the US regulatory environment has been hitherto squeamish about crypto’s potential.

Because crypto really could be the silver bullet to the Forex conundrum. Onchain exchange does not have settlement risk. The immutable, transparent code ensures transactions execute as intended. The astonishing rise of stablecoins and the ferocious pace at which they are being minted is in part in preparation for the wonderful potential of tokenization of fiat currencies globally and the opportunities this creates for local currencies to be fairly traded between the individuals and companies that desperately need them.

Stablecoins are being adopted at breakneck pace in developing countries as a hedge against their own economies, economically empowering the citizenry in a way it never could be before. The closed off system is, thanks to blockchain, now open. Efforts to capitalise on this are accelerating. Already Citi and Franklin Templeton are exploring money funds and cross-border payments.

Using crypto as a substrate for the $7.6 trillion Forex market is the easiest win the crypto market will ever have. By removing the core spectre of settlement risk and drastically improving the efficiency of cross-border trades, remittance and arbitrage, and far more inclusive global economy will emerge where everyone, including you, can get exactly the money they want, when they want it, at a fair price dictated by a global democratic market. Forex will be crypto’s killer app, a 24/7 exchange that powers local markets. Money makes the world go round, and with crypto, money will finally go round the world.