Hawala, banks, and the gap between them: why stablecoins are the answer to a very old problem

If you want to understand why this market exists, do not start with technology. Start with a business in Lagos that needs to pay a supplier in China, and has two bad options.

This note explains those two options, why both fail, and why a third has emerged. It is the most important idea in everything I do, so I want to lay it out carefully and from the beginning.

What hawala actually is

Most people in Western finance have heard the word "hawala" and assume it means something shadowy. It is simpler and older than that.

Hawala is an informal way of moving value across borders without moving money across borders. It runs on a network of brokers — called hawaladars — who trust each other. If you want to send value from Dubai to Karachi, you hand cash to a broker in Dubai. He calls his counterpart in Karachi, who pays out the equivalent to your recipient. No money crossed the border. The two brokers simply now owe each other, and they settle that balance later through trade, reverse flows, or netting.

It has worked this way for over a thousand years. It predates the banking system. And in much of the world it still moves enormous volumes of value, because it is genuinely good at the thing it does.

Why it works — and why that should worry you

Hawala survives because it is fast, cheap, and works in places the formal system barely reaches. A payment can clear in hours. Fees are low. It functions in countries with weak banking, currency controls, or no reliable access to dollars. For the underbanked and for small businesses, it is often the only thing that works.

Now the other side.

Hawala has no custody, no contracts, no audit trail, and no legal recourse. If a broker disappears, the value is gone, and there is no one to call. Nothing is recorded, so it cannot be explained to a regulator, an auditor, or a bank. And it does not scale — the moment volumes grow or scrutiny arrives, the whole structure becomes a liability. It is, in one phrase, operational speed without survivability.

No serious company can build on it. But many quietly rely on it, because the alternative is worse.

Why the banks do not fill the gap

The obvious response is: why not just use a bank. The answer is that for cross-border payments in these markets, the bank is the slow option.

Almost every international bank payment travels through correspondent banking — a chain of intermediary banks, each adding a fee, a delay, and a layer of opacity. In hard corridors that chain is long or broken. Settlement takes days. And over the past fifteen years the banks have been retreating from exactly these markets — the number of correspondent banking relationships has fallen by more than a quarter since 2011, and far more in the riskiest regions, as banks "de-risk" to avoid compliance exposure.

On top of that sit the local frictions: foreign-exchange queues in Nigeria and Pakistan where a company waits weeks for an allocation of dollars, forced conversion at poor rates, and the simple scarcity of dollars in economies that cannot get enough of them.

So the bank offers safety, custody, and a paper trail — but slowly, expensively, and increasingly not at all in the places that need it most. It is safety without usability.

The trap

This is the dilemma every treasurer in these markets actually faces. Not "which provider is cheapest." It is a choice between speed they cannot defend and safety they cannot use. Hawala gets the goods shipped but cannot survive scrutiny. The bank survives scrutiny but cannot get the goods shipped. Neither supports high-volume, high-frequency, cross-border trade.

That gap — between the fast-but-indefensible and the safe-but-unusable — is the problem. Everything else is detail.

Where stablecoins come in

A stablecoin is a digital token designed to hold a fixed value, almost always one US dollar, backed by reserves held by its issuer. The most widely used is called USDT. It lives on a shared digital ledger, which means it can move between parties directly, around the clock, and settle in minutes rather than days.

Here is why it matters for our problem. A stablecoin transfer is as fast and borderless as hawala — but every movement is recorded on that shared ledger. It can be traced, audited, and explained. It does not depend on a single broker's word. It does not vanish if someone disappears.

In other words, the stablecoin offers the speed of the informal channel with the auditability of the formal one. It is the missing middle layer between the two broken extremes — and it is why value is now migrating onto these rails in exactly the markets where hawala was strongest.

Hawala is the symptom, not the market

I want to be careful with the framing, because it is the part most people get wrong.

The opportunity here is not hawala, and it is certainly not replacing one informal network with another. The existence of hawala at scale is simply evidence — proof that the formal system is failing a vast share of the global economy. A World Bank study once estimated that 80 to 90 percent of Afghanistan's economy ran through hawala channels. That is not a curiosity. That is the size of the value waiting to be brought into a system that can be governed.

Hawala is the symptom. The real market is the migration of that trillions-of-dollars flow from informal to regulated, from offline to digital, from fragmented to integrated.

My read

A stablecoin on its own is just a faster rail. It is not, by itself, a treasury solution — a corporate still needs onboarding, compliance, approvals, reporting, and a way to convert in and out of local currency through regulated partners. The token solves the movement problem. The infrastructure built around it solves the business problem.

That distinction is the whole game. The rail already exists and already works. The opportunity — the durable one — is in building the layer that makes it usable, compliant, and trustworthy for the businesses that have been stuck choosing between a broker who might vanish and a bank that cannot help.

That choice has defined cross-border trade in the developing world for decades. For the first time, there is a real third option.