The promise of faster and cheaper remittances may accelerate crypto adoption in many emerging markets, including those that have not historically utilized credit and debit payments, notably Latin America.
One of the most promising benefits of digital assets is the ability to move value over the global internet nearly instantaneously, in immutably recorded transactions. For many people in warzones or geographies with limited access to banking or payment card infrastructure, this capability is critical and can often be life-saving.
Remittances from individuals with ready 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 records. According to the World Bank, remittances to low- and middle-income countries reached nearly US $600 billion in 2021, with around $100 billion flowing to Latin America. These remittances have typically been saddled with sluggish settlement times, unfavorable exchange rates, and onerous commissions and fees often levied by the issuing bank, the beneficiary bank, and a correspondent or intermediary bank in between. (According to the World Bank, “remittance costs are exorbitant in smaller corridors”). Add to that infrastructure deficiencies, transaction limits, weekend and holiday blackouts, multiple levels of verification in each country, money laundering controls, possible international sanctions, and internal capital controls, and the frictions that those seeking to transfer funds face can be daunting.
Digital Assets as an Enticing Alternative
For those in Latin America who receive remittances from family or friends working in other countries, or businesses looking to reduce transaction friction and costs inherent in the correspondent banking system, the promise of digital assets to facilitate value transfer is tantalizing. Developers and fintech companies are betting on this pent up demand by deploying the digital infrastructure and platforms to allow for easier peer-to-peer and mobile-to-mobile value transfer. The censorship-resistant nature of digital assets (whether bitcoin, stablecoins, or bespoke platform tokens) that move from wallet to wallet on the blockchain make them more resilient in the face of geopolitical tensions. And transactions that can be consummated cheaply, securely, internationally, instantaneously, 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 by the Stellar Development Foundation, about 23% of those who made online cross-border payments sent funds using cryptocurrencies, and about 13% of those surveyed said cryptocurrencies were their most used payment method for online cross-border remittances.
Digital Assets as a Lifeline
In addition to facilitating the ease of receiving payments, digital assets could be used when none of the more traditional payments means is available. One of the top stories coming out of the Russian invasion of Ukraine as it relates to digital assets is the fear among lawmakers and regulators around the globe that cryptoassets will be used to evade sanctions. Some have argued that those fears are exaggerated,[i] but what is important to remember is that the same features of the digital asset economy that are under scrutiny for facilitation of potentially illicit ends may also be lifelines for innocent bystanders: those who are third-party victims of the sanctions campaign, and of their own country’s decision to implement capital controls, and even of local bank runs that could leave them without access to funds.
A Win-Win Middle Ground
A critical factor that could accelerate adoption of digital assets will be jurisdictions recognizing that digital assets are here to stay, and providing 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 adopted them wholeheartedly, including allowing bitcoin the status of legal tender. But the middle way may be the most attractive. Governments would retain the ability to set the regulatory and enforcement parameters, but individuals would enjoy the benefits of transacting in digital assets. That arrangement is a win-win for everyone, especially those who rely on international remittances for their most basic needs.
[i] One argument is that the blockchains upon which these transactions would occur are not anonymous in the way cash is, and therefore tracking and preventing of illicit transfers may actually be enhanced when digital assets are in play. Another is that the digital asset infrastructure, while growing, is not yet at the sophistication or scale to accommodate massive transaction flows. US Treasury Secretary Janet Yellen stated in a recent House hearing that despite the theoretical possibility, the feasibility of effectuating large-scale transactions using cryptocurrency to evade sanctions is improbable, and evidence for significant crypto use in sanctions evasion is lacking.