Benefit for companies to use XRP for liquidity

[CryptoSoif]

What are the cost benefits for a company to use XRP for liquidity on the Ripple system? 

[Guest]

21 minutes ago, CryptoSoif said:

What are the cost benefits for a company to use XRP for liquidity on the Ripple system? 

https://ripple.com/files/xrp_cost_model_paper.pdf

[KarmaCoverage]

Just quickly put yourself in the seat of a Corp Treasurer who does business in 3 different countries. In each country you do a minimum of $75,000 per month and never more than $100k per month in net outbound payments (suppliers). 

To service these 3 suppliers, you need to allocate $300k, depositing $100k in each country. On months where all suppliers are only paid the minimum, there is (3x $25k) in cash that is "dead", or poorly allocated, not creating optimal value for the company. The goal is to minimize "dead capital". 

(assuming no price change in XRP) The treasurer could have 1 account, with one FI, and service all three suppliers in  all three countries. This reduces operational effort, with less vendors, and reduces exchange rate risk exposure (down from 3 currencies to 1).

The other cool thing, is that XRP can essentially be everywhere at once. So, if your "average total payments" to all three countries is $250k, then you only have to float $250 in XRP, not the full $300 in all three countries. I think this is the driver of most of the cost savings.

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Now a slightly different angle, you are still a Corp Treasurer and you have a lot of cash on hand already deployed in 3 countries. You dont have a steady "average total payments" to all three countries, so you cant reduce your total float, and must keep $100k in each country. The deposit bank pays near 0% on the balance, so you want another investment option for your international float.

Another company Corp B, does not regularly do business internationally, but they have a one time deal that involves an international payment. You and Corp B Treasurer make a deal, you will sell him $25000 of your float in the country where he needs it, for a fee/spread of 1%. He agrees and gives you $25,250, and using your existing international float, you pay the other side of his deal in the country where you have the cash parked.

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So there is both cost savings, and profit potential.

Another key point was made in that video where Ripple introduced the idea of a Market for Float, the speaker acknowledges that excess Float drives up the cost of all goods & services. This is similar to how the cost of interest is baked into the price of everything. 

Edited November 18, 2017 by KarmaCoverage

[will4star]

@KarmaCoverage -- the clearest explaination of this I think I've seen, thanks.