It’s no surprise that global incomes vary widely.
According to the BBC, “more than a third of the world’s population lives on less than $2 a day,” reminding readers that not everyone across the globe has equal access to the economic tools they need to acquire even the basics.
Often this kind of scarcity, coupled with the natural drive to improve one’s condition, drives hard-working, well-intentioned citizens of developing nations to seek work across country lines. And with the help of family members working abroad, those who stay behind see their financial outlooks brighten as money starts making its way across geographies and into their pockets.
But with these much-needed remittances come transaction fees and complications associated with accessing these funds.
Some recipients are also underbanked. Some have to force their way through legal and political red tape, but in many cases, crypto remittances become synonymous with access to change.
It’s actually been the promise of crypto from the beginning – proliferate access to a larger economy that’s decentralized and operable for anyone, anywhere.
Why turn to crypto remittances in emerging markets?
Usually when we talk about remittances, we’re thinking of a generalized payment (i.e. the bank requested that we remit payment, etc.). But in the context of cryptocurrency markets, we’re talking about “money sent cross-border by individuals, typically from a richer country to a poorer one” (TechCrunch, 2022).
Since some emerging markets use legal tender that’s in some ways corrupt, heavily controlled, or unstable, receiving remittances through a global financial system (i.e. cryptocurrency on blockchains) provides the ability to transfer assets and access assets that may be unavailable or even locked down by government entities.
Emerging markets in Africa stand to see significant benefit from crypto remittances. For example, many African youth have little access to substantial employment, and microwork offers better pay with additional value hinged on fee reductions available through crypto payments.
And we’re not talking about small values. Just because it’s an emerging market, it doesn’t mean it’s a small market as Brookings notes that “of the $48 billion remitted to sub-Saharan Africa in 2019, Chainalysis estimates that up to $562 million worth of remittance payments were facilitated by cryptocurrencies.” With increased access to crypto, and more impetus to send remittances using this mechanism, it’s logical to assume this number will increase in the years to come.
Challenges and opportunities with crypto remittances.
Even though crypto remittances unlock massive economic opportunities, there are associated risks and concerns. Recently, even the United Nations’ trade body paints a less than rosy picture about the promise of crypto remittances. But for those in need, and those who sacrifice to support them, the potential for reward might give them little pause as they transfer crypto to friends and family members.
Here are a few things to consider…
- Sophistication – Remittance senders and recipients need some degree of technological experience to navigate, send, and access crypto remittances. Some individuals used to traditional banking structures may need to learn new skills to take full advantage.
- Infrastructure – Emerging markets may not have adequate infrastructure to support a technological shift toward untraditional transaction models. Even what some consider to be the basics, like electricity and a decent internet connection, may elude would-be crypto enthusiasts.
- Volatility – There are no guarantees that crypto will be a stable, reliable form of currency. Just like any market, there’s volatility that expands and contracts risk and reward, and if people become overly-reliant on something as volatile as crypto, they could be in for an unwelcome surprise if the market takes a new direction.
- Risk to monetary sovereignty – Sometimes less of a concern for the neediest populations, but maintaining monetary sovereignty and creating a sound financial system can protect populations from exploitation and enable a path to economic improvement for vulnerable citizens. Those who see crypto as a threat might do well to ensure equal access to banking before pulling the plug.
- Less fees – more back in the pocket of family members – $5 or $7 may not sound like a lot of money to western audiences, but depending on the wage, savings like these could translate to an entire day’s wage.
- Regulation and taxation – As adoption increases, so does regulation. But who’s keeping track of transactions like crypto remittances? Exchanges offer some support, but getting access to simple, affordable crypto tax software can help those in emerging markets avoid tax penalties.
In many ways, emerging markets may stand the gain the most from crypto – not necessarily in the form of massive economic gains (though those could be substantial), but in terms of gaining access to a financial system that pulls less from them and offers more opportunity.