According to
Developing Economies Benefit the Most from Remittance
In 2022, the
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India (US$111 billion),
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Mexico (US$61 billion),
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China (US$51 billion),
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Philippines (US$38 billion), and
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Pakistan (US$30 billion).
While remittances are primarily private funds and not a substitute for public spending, they do benefit the economy by enabling recipients to actively participate in the consumer market. After all, when people spend these funds for domestic consumption, it serves as a significant boost to the national economy.
The Traditional Remittance Landscape
The World Bank calculates the
Albania sources more than 9% of its GDP from personal remittances, whereas, in Armenia’s case, the figure is more than 10%. In El Salvador, remittances constitute almost 27% of the country’s GDP, and for Georgia, it's nearly 17%.
Given remittance’s role in uplifting the standards of living of a large segment of the global population, it must happen seamlessly. However, the traditional modes of remittances do not always ensure so. This is due to several key challenges, such as high transaction costs, low speed, limited access to financial services, and lack of transparency. Fixing these loopholes is crucial for the growth and efficiency of the global remittance market.
High Transaction Fees
In November 2022, the IMF
As per the study, the global average of remittance transaction fees - as a share of a US$200 remittance - has been nearly US$7.5 worldwide. But in many Southern African countries, such as Angola, Botswana, and Namibia, the fees are 2.5 times the sample average, owing to high exchange rate margins.
Apart from an existing imbalance, some countries witnessed a widening of the gap as well. Remittance transaction fees increased by more than 40 percent in countries like Gambia, Afghanistan, and the Kyrgyz Republic between 2016 and 2020.
Overall, there is significant heterogeneity in remittance transaction fees globally, as many countries pay a lot more to receive funds from outside than the global average. Yet, high fees aren't the only challenge affecting remittance flows.
Transaction Delays
Delays in overseas fund transfers also pose challenges to those on the receiving end of remittances. However, factors contributing to these delays are often beyond the control of the beneficiaries.
For example, banks have cut-off times for transactions, a factor further complicated by the varying public holidays observed in different regions. Moreover, the methods for sending funds can vary by country, with financial institutions requiring extra time for anti-fraud and anti-money laundering checks.
What further exacerbates these delays is often a lack of clear information, introducing another layer of complexity: a lack of transparency.
Lack of Transparency
The World Bank
One such
Echoing this, the World Bank identifies a lack of transparency as the single most important factor leading to high remittance prices. The components of these prices are multifaceted, involving variables like upfront fees and FX margins.
Unbanked, Underbanked Population & Their Plight
While transaction delays, high costs, and lack of transparency are mostly infrastructural pitfalls, a large chunk of the global population is bereft of the basic minimum access to banking.
According to a World Bank
Cryptocurrencies: A Potential Game-Changer
From the outset, cryptocurrencies have been designed to achieve financial inclusion. They utilize blockchain-enabled smart contracts to facilitate peer-to-peer transactions with minimal need for intermediaries. This not only reduces transaction costs but also accelerates the process.
Smart contracts further enable direct loan agreements between lenders and beneficiaries, while asset holders can efficiently invest their idle assets for returns. Collectively, these automated applications represent a transformative shift in the financial sector.
Similarly, blockchain and cryptocurrency-based systems have democratically restructured financial transactions. By eliminating the need for centralized, cost-bearing authorities, they have made financial systems more decentralized, inclusive, and equitable.
Decentralization Through Blockchain: Impact on the Remittance Market
Blockchain-enabled, intermediary-free peer-to-peer transfers can significantly lower transaction costs. In fact, data shows that these crypto transactions can cost as little as 0.01% to 0.10% of the total amount, making them up to
To understand the greater economic ramifications, let us take the case of Kenya, for
Kenya: A Case Study for Remittance Benefits
In Kenya, where the average cost to send $200 is over 8.7%, remittances made up 3.5% of the GDP in 2021, totaling $3.7 billion. Lowering these costs to around 2% could have saved the country over US$200 million, equivalent to 0.22% of its GDP. But it's not just about economic savings - crypto remittances also offer significantly better speed.
Moreover, since crypto transactions do not require banking institutions to mediate, they can spread to regions with very limited banking infrastructure. All one needs is access to a healthy internet system. This benefit is particularly relevant considering that global banking network distribution is not at all homogeneous.
Against this backdrop of unequal banking access, low cost of remittance transactions, better speed, and improved accessibility & inclusion make cryptocurrencies a compelling solution. As a testament to its growing relevance in remittance, crypto adoption is visibly on the rise in many countries worldwide.
Real-World Applications and Case Studies
Latin America
Remittance payments are fueling crypto adoption in Latin America, leading to a 40% surge in value, which reached $562 billion from July 2021 to June 2022. This adoption is further driven by regional economic factors, such as high inflation rates and weakening national currencies.
In response, crypto users in the region are increasingly turning to stablecoins—cryptocurrencies pegged to the price of stable currencies like the USD—as a practical solution.
Africa’s Growing Cryptocurrency Remittance Market
Africa has significantly adopted cross-border blockchain remittance, driven in part by limited access to formal banking systems and poor financial inclusion. This has led to rapid growth in the cryptocurrency remittance market across the continent.
Supporting this trend, the International Monetary Fund reports that Africa is one of the fastest-growing crypto markets globally, with transactions reaching US$20 billion per month in 2021. This growth is most evident in countries like Kenya, Nigeria, and South Africa, which boast the highest number of users among African nations.
Crypto Remittance Scenario in Asia Pacific
In the Pacific, Ripple has gained significant traction as a crypto-based
Shifting the focus to Asia, digital fund transfer services are also on the rise here. Strike, for instance, has partnered with a bunch of local businesses that connect Bitcoin’s Lightning Network to local banking services, including Pouch in the Philippines and GetBit in Vietnam.
These collaborations underscore the growing fusion of traditional financial systems with cryptocurrencies across Asia.
Crypto Remittance Using Blockchain at a Global Level: Challenges and Considerations
While crypto remittance has successfully emerged as an alternative to traditional modes of international money transfer, it faces challenges, such as volatility, regulatory pressures, and the need for increased awareness, particularly in low and middle-income countries.
Volatility Concerns
In some countries like Venezuela, the national currency, such as the Bolivar, has proven even more volatile than Bitcoin. Here, the crypto-economy, with solutions such as stablecoins, has managed to offer far lower volatility levels.
Yet volatility is a hurdle in most countries, as even the Bitcoin prices - the representative asset of the crypto-economy have been a topsy-turvy ride over the past year and more.
Regulatory Pressure
Regulatory pressures pose another significant barrier to adoption. For instance, around 20% of sub-Saharan African countries have banned crypto assets—countries that would, ironically, benefit the most from crypto remittance.
Lack of Crypto Awareness
Finally, crypto education is not yet up to the mark to encourage a significant segment of the global population to adopt digital assets as a means of international fund transfer. In fact, even among those who have adopted crypto, many are doubtful of its safety and reliability.
The Future of Global Remittances
In a realm where global remittances could surpass
As blockchain-backed digital currencies promise to slash fees, expedite transactions, and enhance transparency, their real-world utility in remittance services is becoming evident in various regions, from Latin America and Africa to the Asia-Pacific. However, this positive trajectory comes with its own set of barriers like market volatility, regulatory constraints, and limited public familiarity.
Despite these challenges, upcoming tech innovations are poised to further simplify and enhance crypto-based remittances, putting the market on track for substantial growth. This signals a tangible leap toward better efficiency, affordability, and financial inclusion globally, but one that will still necessitate a concerted effort among policymakers, regulators, and the crypto industry to overcome lingering obstacles.
Also published here.