How Emerging Economies Can Benefit From Cryptocurrencies

When first decentralised digital currency, bitcoin, was launched in 2009, it empowered individuals to “be their own bank” by enabling them to securely store, send and receive payments in digital form without the need for a financial intermediary. Today, cryptocurrencies offer a wide range of benefits for individuals in developing economies.

Low-Cost International Money Transfers

International remittances play an integral role in many developing countries’ economies. According to the World Bank, the five largest recipients of remittances are China, the Philippines, Mexico, Nigeria, and Egypt. In 2017, these countries received a combined amount of over $170 billion in international money transfers.

Moreover, in countries such as the Philippines, Egypt, and Nigeria, remittances make up a substantial part of their GDPs. In the case of these three countries that amounts to 10.5 percent, 9.6 percent, and 5.9 percent, respectively, according to World Bank data.

However, recipients of remittances suffer from high international money transfer fees, which can run into the double digits. For example, sending money from the UK to Kenya can cost the sender up to 13.46 percent, which takes a big chunk of the recipients much-needed funds.

Using cryptocurrencies, the cost of international money transfers can be as low as a fraction of a percent, and recipients receive their money almost instantly.

Boost Financial Inclusion

Beyond remittances, cryptocurrencies can also help to spur financial inclusion among the unbanked and underbanked populations around the globe.

By providing access to digital currency wallets, individuals who are not able to attain a bank account — as they do not have sufficient documentation to pass banks’ KYC checks — can securely store, send and receive payments using their mobile phones. This opens up the ability to save, send money to family members and improved financial management.

Several blockchain startups who are tackling financial inclusion with cryptocurrency. Humaniq and Wala, for example, are two mobile banking startups that are leveraging cryptocurrencies to provide banking services to underserved communities in developing nations.

Currency That Cannot Be Manipulated by Governments

While most cryptocurrencies today are still very volatile, so-called “stable coins” that have their value pegged against a physical asset such as gold, for example, offer individuals a viable currency alternative to weakening local fiat currencies. But even bitcoin has been a popular alternative currency in struggling economies.

Citizens of Venezuela, Zimbabwe, and Brazil have resorted to moving their funds into bitcoin as a store of value and as a hedge against their depreciating local sovereign currencies.

A New Medium for Fundraising

Cryptocurrencies also offer an entirely new way of fundraising for startups that are struggling to secure financing through traditional means.

Entrepreneurs from anywhere in the world can now raise funds for their projects by launching an initial coin offering (ICO), where they sell their project’s digital token to early-stage investors in exchange for funding.

While crowdfunding has been around for a while, the limited barriers to entry of conducting a digital token sale to fund a project have made it easier than ever for entrepreneurs in developing countries to turn their visions into a reality.