Cryptocurrency, Remittance and Poverty Reduction
Remittance Economies in Developing Countries
In many developing countries, remittances or any form of cash transfers can be a lifeline for families or even entire communities. This is because oftentimes the family breadwinner will work in a city or even abroad to provide for their families. Relying on remittances is more common among rural families. However, with the prevalence of migrant laborers working abroad, this reliance on remittance may now no longer be exclusive to rural communities.
Migrant workers from developing countries come from a more diverse population range. Many may be from rural areas, but many are also urbanites who migrate to search for better opportunities abroad. For example, many migrant workers from South Asia and Southeast Asia migrate to the Middle East to work as laborers and domestic workers, but with many also having typically middle class professions such as engineers and financial services. Many of these migrant workers send money home for their families and are the primary breadwinner of their families.
Money sent by migrant workers not only provides sustenance for their families, but are also vital for their families to improve their overall welfare. The money can be used to fund small businesses or their children’s education so that they can attain higher education which oftentimes the parent who are migrant workers were previously not able to attain.
Remittance economies in developing countries provide a source of income and promise of social security and progress for many families. Remittance economies also often boost the migrant workers’ origin countries’ foreign exchange reserves. Money sent from abroad contributes to the recipient countries’ gross domestic product by being an intake of foreign currency reserves.
The Problems with Traditional Remittance
Foreign exchange reserves are often typically tied to major economy currencies: most often the US Dollar. What typically happens is foreign currency gets sent to the beneficiary country and the ultimate recipient cashes it in the country’s domestic currency. But what happens when the foreign currency being sent experiences a drop in its valuation?
Inflation of the foreign currency being received would simply mean the value of what is being remitted will decrease. This means beneficiaries of foreign remittance often receive an amount that has been drastically cut from what was originally sent. Even though inflation that can make significant depreciations often don’t happen overnight, for a low-income family relying on the remittance economy, any and all amount deducted can certainly cause disruptions to their own financial planning.
This inevitability is due to the reason that all currencies, foreign or domestic, derive its value from a centralized entity: a central bank or a monetary institution of a similar sort. Any and all occurrences that affect these institutions, often beyond the control of most of the population, will automatically affect the value of currency being earned, sent and received. Purchasing power can fluctuate and the value of savings diminish.
More common aspects of traditional remittance that would be a detriment to low-income families include logistics. It is not uncommon for remittances to take days to be received by the beneficiary. Not to mention receiving the money would also often entail travel for the beneficiary which may present a risk as cashing in large sums of money would present an inherent vulnerability in safety.
The cost of remittance is also a significant detriment to beneficiaries and senders. It must be noted that even a $5 cost in money transfer would present a great disruption for beneficiary families living in poverty: those that live off less than $2 a day.
Decentralizing Remittance with Cryptocurrency
The crypto industry is one that continues to grow and change the way financial services work. This is attested by the fact that financial services giant Mastercard has accepted cryptocurrency payments since 2021. This is because cryptocurrencies present the ability for a more decentralized financial system.
“With international remittance fees ranging anywhere from 5-10% (and more in some cases), it is clear that there is a lot of room for improvement. Decentralizing the remittance value chain will undoubtedly cut out middlemen and make for a more efficient process. This is all in the interest of the end user/recipient. This is just another example of how crypto can be a positive move towards greater financial inclusion.” - Sulmaan Hanif, Fasset’s Head of Partnerships
Sending money via cryptocurrency instead of traditional remittance is a much faster and low-cost process. The cost of sending crypto can be as low as being in the 0.01 percent of the amount being transferred. The money would also be received within minutes at most.
For many in developing countries, this sending and receiving money via cryptocurrency would present a great alternative to the costly traditional remittance method most have relied on. The increased internet penetration in developing countries would also ensure that such transfers would be more accessible as time moves forward.
Remittance using cryptocurrency has become a reality for a number communities in the global south. For example in Kenya, where foreign remittances are notoriously expensive and lengthy processes, many have taken advantage of sending and receiving money to and from foreign countries using cryptocurrencies.
Making cryptocurrency remittances more widespread would mean providing low-income communities a means to receive sums of money that are not as deducted nor stalled by time as would traditional remittances provide. At Fasset, we believe that providing this opportunity for communities in the Global South, rural or urban, is a core part of our mission.
Decentralizing financial access for the most vulnerable would mean bypassing the centralized, established institutions that have long dominated the financial system. Bypassing such a barrier would mean giving more power to the breadwinners and the beneficiaries. By ensuring their assets are being sent and received quickly and with the lowest possible costs, we believe that it would only make lives easier and enable low-income communities to climb their way out of poverty even more quickly and surely.
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