Bloomberg — One of the largest money-transfer services in the US is attempting to broaden the adoption of digital currencies.
MoneyGram International Inc. is preparing to launch a service in partnership with the Stellar blockchain that would allow users to send stablecoins and easily convert them to hard currency.
“The world of crypto and the world of fiat are not really compatible today,” MoneyGram Chief Executive Officer Alex Holmes said in an interview with Bloomberg News. “We’re trying to be a bridge from the crypto world to the fiat world.”
The move arrives as remittances become more popular in emerging markets, but also as stablecoins -- digital assets meant to maintain a 1-to-1 relationship with a commodity or currency like the US dollar -- come under heightened scrutiny. Once the service fully launches, users with digital wallets on the Stellar blockchain will be able to convert their holdings into Circle Internet Financial’s USDC stablecoin, which can then be cashed out through MoneyGram’s network, Holmes said.
This month’s collapse of the TerraUSD stablecoin has put an unfavorable light on these kinds of digital assets and triggered market instability. Even though Terra is different from USDC, which is backed by dollar-equivalent assets kept in reserve, the Terra meltdown has raised concerns that these stablecoins could lose their peg too. The world’s largest stablecoin, Tether Holdings Ltd.-issued USDT, briefly lost its dollar peg on May 12. Regulators have raised questions over the riskiness of USDT’s reserves, which include commercial paper, a type of short-term debt. Tether released a new token pegged to the Mexican peso on Thursday.
A de-pegging is unlikely to happen with USDC, the stablecoin used in MoneyGram’s partnership with Stellar, because the currency is fully backed by safe liquid assets, according to Dante Disparte, chief strategy officer and head of global policy for Circle.
“We’re not taking the dollar and putting it in the reserves and then lending it out,” he said in an interview. “Instead, the reserves are strictly cash and US Treasuries.”
The Terra debacle also deepened a broader crypto market downturn. The price of Bitcoin, the most popular digital currency, has slumped down more than 20% this month.
Holmes said he’s still confident in digital currencies. Cryptocurrency “is obviously here to stay and its going to be here for a long time despite recent selloffs and volatility,” he said. “I think adopting it, bringing it into the mainstream is important.”
MoneyGram’s new service with Stellar could also help spread crypto usage in emerging markets. Remittances to low- and middle-income countries grew to $589 billion last year and are projected to increase this year, according to the World Bank. For countries like El Salvador, which made Bitcoin legal tender last year, remittances account for more than 20% of gross domestic product.
“There are billions of cash-dependent people globally who could benefit from the utility that digital assets and blockchain provide,” Denelle Dixon, CEO of the Stellar Development Foundation, said in a written response to questions. “The answer is what we’re building through this partnership — a service for helping them go from cash to digital assets.”
El Salvador President Nayib Bukele has criticized remittance companies for charging hefty fees and said using Bitcoin will save the country $400 million a year on money sent home by nationals living abroad. In the US, where remittances abroad total more than $100 billion annually, MoneyGram has been accused by New York state and the U.S. Consumer Financial Protection Bureau of delaying international money transfers and failing to disclose prices.
Holmes said fees for sending money to El Salvador from the US via MoneyGram range from 0.5-2.5% of a transaction’s face value, below the World Bank’s target of 3%. The costs to acquire and transfer Bitcoin through custodial wallets or exchanges and convert it back to dollars on the receiving end can exceed those of traditional remittance networks, he said.
“When I look at it from our view of the world on the remittance side, I think that [Bukele’s] comment was slightly misplaced,” Holmes said. “I think it was part of the grandstanding and the advertising of what things like crypto can bring into the world.”
‘Where the World Is Going’
El Salvador’s government launched its own Bitcoin wallet last year called Chivo and gave users a $30 signup bonus. Holmes said third-party wallets are starting to appear in El Salvador and MoneyGram is holding discussions with some of those companies on potential partnerships so it can further compete in the digital-wallet space for Bitcoin and other currencies.
“If a country like El Salvador is going to make Bitcoin seamless with US dollars in country, I think that consumers, through MoneyGram, should be able to transfer Bitcoin to El Salvador or transfer dollars and convert them to Bitcoin,” Holmes said. “If that’s where the world is going, let’s participate in that world and let’s see how we can help fulfill that opportunity.”
MoneyGram previously worked with Ripple Labs Inc., which was co-founded by Jed McCaleb who ultimately left Ripple to help launch Stellar. The partnership between MoneyGram and Ripple ended in March 2021 following a lawsuit filed against Ripple by the U.S. Securities and Exchange Commission in December 2020, alleging that the company held an unregistered securities offering of its XRP token.
In July, MoneyGram courted takeover interest from Stellar Development Foundation, the nonprofit that manages the Stellar blockchain, and private equity firm Advent International. The company then teamed up with Stellar in October on developing a crypto remittance service and released a pilot program in November.
Other companies like Meta Platforms Inc. have also begun to experiment with new remittance channels and last year launched a pilot program in Guatemala and the US called Novi, a digital wallet in partnership with Paxos Trust Company, which issues the Pax Dollar stablecoin.