The promise of faster and cheaper remittances may accelerate crypto adoption in many emerging markets, including those that have not historically used credit and debit payments, notably Latin America.
One of the most promising benefits of digital assets is the ability to transfer value across the global Internet almost instantaneously, in immutably recorded transactions. For many people in war zones or geographies with limited access to banking or payment card infrastructure, this capability is critical and can often save lives.
Remittances from people with easy access to banking and credit resources to family members or friends in geographies without such access to more traditional payment methods, continue to hit annual highs. According to the World Bank, remittances to low- and middle-income countries reached nearly US$600 billion in 2021, with about US$100 billion going to Latin America. These remittances have typically struggled with slow settlement times, unfavorable exchange rates, and onerous commissions and fees often levied by the sending bank, the receiving bank, and a correspondent or intermediary bank in between. (According to the World Bank, “remittance costs are exorbitant in small corridors”). Add to that infrastructure deficiencies, transaction limits, power outages on weekends and holidays, multiple levels of verification in each country, money laundering controls, possible international sanctions and internal capital controls, and the friction faced by those seeking to transfer funds can be daunting.
Digital assets as an attractive alternative
For those in Latin America who receive remittances from family or friends working in other countries, or from businesses seeking to reduce transaction frictions and the costs inherent in the correspondent banking system, the promise of digital assets to facilitate the transfer of value is enticing. Developers and FinTechs are betting on this pent-up demand by deploying digital infrastructure and platforms to enable easier peer-to-peer and mobile-to-mobile transfer of value. The censorship-resistant nature of digital assets (whether bitcoins, stablecoins, or bespoke platform tokens) that move between wallets on the blockchain makes them more resilient in the face of geopolitical tensions . And transactions that can be consumed cheaply, securely, internationally, instantly, immutably, and with 24/7 availability have the potential to completely revolutionize the remittance landscape.
Some studies indicate that this transformation may already be underway. According to a September 2021 survey According to the Stellar Development Foundation, around 23% of those who made cross-border payments online sent funds using cryptocurrencies, and around 13% of respondents said cryptocurrencies were their most popular payment method. no longer used for cross-border online fund transfers.
Digital assets as a lifeline
In addition to making it easier to receive payments, digital assets could be used when none of the more traditional means of payment are available. One of the main stories to come out of the Russian invasion of Ukraine when it comes to digital assets is the fear of lawmakers and regulators around the world that crypto-assets are being used to evade sanctions. Some have argued that these fears are exaggerated,[i] but what is important to remember is that the same features of the digital asset economy that come under scrutiny to facilitate potentially illicit ends can also be lifelines for passers-by. innocent: those who are third-party victims of the sanctions campaign and their own country’s decision to implement capital controls, and even local bank runs that could deprive them of access to funds.
A win-win middle ground
A critical factor that could accelerate the adoption of digital assets will be for jurisdictions to recognize that digital assets are here to stay and provide adequate legal frameworks for developers, exchanges and custodians to operate in a compliant manner. Some countries have taken the approach of banning digital assets outright, as a threat to their sovereignty; others have embraced them wholeheartedly, including granting bitcoin legal tender status. But the middle path may be the most appealing. Governments would retain the ability to set regulatory and enforcement parameters, but individuals would reap the benefits of digital asset transactions. This arrangement is a win-win for everyone, especially those who depend on international remittances for their most basic needs.
Endnote[i] One argument is that the blockchains on which these transactions would occur are not anonymous like cash, and therefore tracking and preventing illicit transfers can actually be improved when digital assets are at stake. Another is that digital asset infrastructure, while growing, is not yet sufficiently sophisticated or at scale to accommodate massive transaction flows. United States Treasury Secretary Janet Yellen said in a recent speech to the House audience that despite the theoretical possibility, the feasibility of conducting large-scale transactions using cryptocurrency to evade sanctions is unlikely, and evidence of significant use of crypto in sanctions evasion is lacking.